<PAGE>




                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                    FORM 10-K

              [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF

                       THE SECURITIES EXCHANGE ACT OF 1934

                   FOR THE FISCAL YEAR ENDED DECEMBER 31, 2001

                                       OR

            [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF

                       THE SECURITIES EXCHANGE ACT OF 1934

              FOR THE TRANSITION PERIOD FROM _________ TO _________

                          COMMISSION FILE NO. 001-15617


                                 SPIGADORO, INC.
             (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

          DELAWARE                                           13-3920210
 (STATE OR OTHER JURISDICTION OF                          (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION)                           IDENTIFICATION NO.)

                                 SPIGADORO, INC.
                         70 EAST 55TH STREET, 24TH FLOOR
                            NEW YORK, NEW YORK 10022
                    (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)

       REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (212) 754-4271

           SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:

TITLE OF EACH CLASS:               NAME OF EACH EXCHANGE ON WHICH REGISTERED:
COMMON STOCK, $0.01 PAR VALUE              AMERICAN STOCK EXCHANGE

           SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:

                                      NONE

Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]

The aggregate market value of the voting and non-voting common equity held by
non-affiliates of the registrant as of the close of business on March 28, 2002
was approximately $3,000,000.

As of March 28, 2002, 67,628,016 shares of the registrant's common stock, $0.01
par value (excluding treasury shares), were issued and outstanding.

                       DOCUMENTS INCORPORATED BY REFERENCE

The information called for by Part III is incorporated by reference to our Proxy
Statement with respect to our Annual Stockholders Meeting to be held in 2002.


<PAGE>



                                     PART I

NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Form 10-K contains forward-looking statements within the meaning of the
"safe harbor" provisions under Section 21E of the Securities Exchange Act of
1934 and the Private Securities Litigation Reform Act of 1995. We use
forward-looking statements in our description of our plans and objectives for
future operations and assumptions underlying these plans and objectives.
Forward-looking terminology includes the words "may," "expects," "believes,"
"anticipates," "intends," "projects," or similar terms, variations of such terms
or the negative of such terms. These forward-looking statements are based on
management's current expectations and are subject to factors and uncertainties
that could cause actual results to differ materially from those described or
implied in such forward-looking statements. Readers are cautioned not to place
undue reliance upon any forward-looking statements contained in this Form 10-K,
which speak only as of the date the statements are made. We expressly disclaim
any obligation or undertaking to release publicly any updates or revisions to
any forward-looking statements contained in this Form 10-K to reflect any change
in our expectations or any changes in events, conditions or circumstances on
which any forward-looking statement is based. Factors which could cause such
results to differ materially from those described in the forward-looking
statements include those set forth under "Risk Factors" and elsewhere in, or
incorporated by reference into this Form 10-K. These factors include, among
others, the following: Vertical Financial Holdings and affiliated entities
control Spigadoro; our substantial debt may adversely affect our ability to
obtain additional funds and increase our vulnerability to economic or business
downturns; if we do not obtain sufficient additional funds our ability to
continue operating in the ordinary course may be impaired; our strategy of
acquiring other companies for growth may not succeed and may adversely affect
our financial condition, results of operations and cash flows; intense
competition in the pasta and animal feed industries may adversely affect
operating results; fluctuations in raw material costs could adversely affect our
operating results; our business may be adversely affected by risks associated
with foreign operations; and other risks.

ITEM 1. BUSINESS

(a) General Development of Business

We produce and sell pasta and flour products and animal feed. Our pasta and
flour business produces traditional, specialty, and health and diet pastas, as
well as flours for use by the bakery industry. Our pasta product line consists
of over 150 products that are marketed primarily under the brand name
"Spigadoro" and approximately 100 products marketed by our private label
division. Our animal feed business produces animal feed for industrial breeders,
family-owned breeding farms and domestic pets. We offer over 600 animal feed
products primarily under the brand name "Petrini."

Since January 1, 2001, we:

     o    retained Riccardo Carelli, a former CEO of Barilla, to serve as CEO of
          Spigadoro;

     o    acquired 100% of the stock of Pastificio Etrusco S.p.A. for stock
          valued at approximately $5,000,000, or 3,372,094 shares of stock
          (subject to adjustment in December 2003 and December 2004) based upon
          a contractually guaranteed valuation of $1.50 per share. The market
          value of our common stock immediately prior to the closing was $0.29
          per share and $0.14 on April 12, 2002. Etrusco's sales for fiscal 2001
          were approximately $11.5 million. The principal motivating factors for
          the acquisition were (1) the opportunity to create production
          efficiencies by consolidating our pasta production in the modern
          facility operated by Etrusco in Foligno, near our facility in Bastia,
          and (2) the opportunity to gain entry into the organic food niche. To
          date, we have transferred approximately 83% of the pasta production
          from our Bastia facility to the more efficient facility of Etrusco,
          and anticipate that such consolidation of production will generate
          substantial annual cost savings. We have also changed the name of
          Etrusco, which is a wholly-owned subsidiary of Petrini, to Spigadoro
          Food S.p.A.;

     o    reached an agreement with a consortium of Italian banks that provides
          for an extension of our Euro 23.2 million ($20.6 million) working
          capital facility for a period of 24 months from October 2001;
          provided, that we will be required to repay approximately 10% of the
          principal amount in April 2003, 50% of the outstanding principal
          amount in June 2003, and the remaining outstanding balance in October
          2003.

                                       1
<PAGE>

     o    adopted the Euro as our functional currency.

See "Business - Recent Transactions."

We have incurred net losses of Euro 21.8 million ($19.3 million) and Euro 4.6
million ($4.1 million) for Fiscal 2001 and Fiscal 2000, respectively. Although
we have taken several actions to reverse these losses, there can be no
assurance that our efforts will be successful. At December 31, 2001, we had a
working capital deficit of Euro 28.6 million ($25.3 million) and we will require
sufficient additional funds to continue our current operations. Our auditors
have included an explanatory paragraph in their report that raises doubt about
our ability to continue as a going concern. See "Risk Factors--Risks Affecting
Our Operations" and "Management's Discussion and Analysis of Financial Condition
and Results of Operations--Liquidity and Capital Resources."

We were incorporated in Delaware in September 1996. Our address is 70 East 55th
Street, 24th Floor, New York, New York 10022 and our telephone number is (212)
754-4271. Unless the context otherwise requires, "we" or "Spigadoro" refers to
Spigadoro, Inc., the Delaware corporation, and our subsidiaries; "Petrini"
refers to Petrini S.p.A., an Italian corporation and wholly-owned subsidiary of
Spigadoro; Gazzola refers to Pastifico Gazzola S.p.A., an Italian corporation
and wholly-owned subsidiary of Petrini; and Spigadoro Food refers to Spigadoro
Food S.p.A. (formerly Pastificio Etrusco S.p.A.), an Italian corporation and
wholly-owned subsidiary of Petrini.

All amounts stated in US Dollars in the description of our business have been
translated into US Dollars for the convenience of the reader at the rate of Euro
1.129 = US $1.00, which approximates the Noon Buying rate of the Federal Reserve
Bank of New York of Euro for US Dollars on December 31, 2001. See "Note 1 of the
Notes to the Consolidated Financial Statements of Spigadoro."

 (b) Financial Information about Industry Segments

     We operate in two business segments:

     o    pasta and other food products; and

     o    animal feed and other activities.

See " - General" and "Note 20 of the Notes to the Consolidated Financial
Statements of Spigadoro" for certain segment information.

(c) Narrative Description of Business

GENERAL

We produce and sell pasta and flour products and animal feed.

Our pasta and flour business produces both branded and private label
traditional, specialty, and health and diet pastas, as well as flours for use by
the bakery industry. Our branded pasta product line consists of over 150
products that are primarily marketed under the brand name "Spigadoro." Through
our Gazzola subsidiary, we are also one of the largest manufacturers of private
label pasta in Europe. Gazzola produces over 100 private label pasta products.

We sell our branded pasta products directly and through independent sales agents
principally through two distribution channels:

     o    retail distribution which supply shops and supermarkets that sell our
          pasta products to consumers; and

     o    food service distribution which supply restaurants, hotels, schools
          and hospitals.

A substantial portion of our private label pasta products are exported by our
Italian based Gazzola subsidiary throughout Europe, with a particularly strong
presence in France and Germany. These products are sold directly and through
independent agents to:

     o    supermarkets, including some of Europe's largest chains; and

     o    importer distributors.

Our private label pasta products customers include some of the largest
supermarket chains in Europe as well as large industrial groups, such as
Barilla.

                                       2
<PAGE>

We sell our flour products directly and through independent sales agents to:

     o    major international food groups such as Nestle, Ferrero, Plasmon and
          Bauli; and

     o    small and medium sized bakeries for the production of cookies,
          panettoni, pandori, pizzas and croissants.

Our pasta and flour products are manufactured at our facilities located in
Perugia and Mondovi, Italy. By-products of our pasta and flour business are used
as raw materials for our animal feed products. Our pasta products are sold
primarily in Europe and, to a lesser extent, in the United States and Southeast
Asia, and our flour products are sold in Italy.

Our animal feed business produces animal feed for:

     o    industrial breeders, including specific lines for the nutrition of
          dairy cows, beef cattle, pigs, rabbits, birds, sheep, goats and
          horses;

     o    family-owned breeding farms, including specific lines for the
          nutrition of rabbits, sheep, goats, birds and horses; and

     o    domestic pets, including specific lines for the nutrition of
          principally dogs and cats.

We offer over 600 animal feed products that are manufactured in six facilities
located in Italy. These products are marketed primarily under the brand name
"Petrini" and sold in Italy through direct sales by us, through our independent
sales agents and through our franchised network of stores.

Strategy

Our goals are to expand our markets by acquiring complementary businesses and by
increasing market share, to provide superior quality and customer service and to
reduce costs and improve operating efficiencies. We intend to achieve these
goals through the application of the following strategies:

Acquire Complementary Businesses. We intend to pursue a consolidation strategy
within our two core businesses. Although our near-term focus will likely be on
Italy, we may seek acquisition candidates in the Mediterranean food and animal
feed sectors throughout Europe. Our acquisition criteria include:

     o    the ability to increase our market share and customer base and allow
          us to compete more effectively;

     o    the ability to achieve operating efficiencies through consolidation of
          facilities, equipment, purchasing and personnel;

     o    the ability to expand our product lines, including the expansion of
          the food division into other Mediterranean products that utilize
          similar distribution networks and marketing strategies as pasta and
          which comprise the popular and growing Mediterranean diet trend, such
          as olive oil, tomato sauce, bread products and vinegar;

     o    the ability to increase production and distribution capacity; and

     o    the ability to capitalize on the strength of our brand names or to
          acquire other strong brands.

Increase Market Share. We pursue opportunities to increase market share and
improve profitability through:

     o    the expansion and rationalization of our product lines;

     o    penetration into new, and expansion in existing, geographic markets,
          including Europe, North America and the Asia/Pacific region, where we
          believe the opportunities for growth and/or competitive conditions are
          favorable;

     o    the development of opportunities to cross-market and bundle multiple
          products to new and existing customers;

                                       3
<PAGE>

     o    the expansion of our AgriPiu franchising network; and

     o    increased marketing and advertising to create brand recognition and
          consumer awareness of our products in new and existing markets.

Reduce Costs and Improve Operating Efficiencies. In order to reduce our costs,
we seek to continually identify opportunities, and implement production and
capital investment strategies, designed to create operating efficiencies and
reduce the costs of manufacturing our products. Our ongoing efficiency efforts
include:

     o    the consolidation of our animal feed production and the conversion of
          less efficient plants into advanced warehouses;

     o    the reduction of overhead costs through streamlining management
          processes and rationalizing personnel; for example, during fiscal
          2001, we reduced our personnel headcount from approximately 514 to 460
          persons (excluding Etrusco personnel acquired in December 2001),
          thereby creating annualized personnel cost savings of approximately
          Euro 2.5 million ($2.2 million);

     o    investments in new production technology and process control
          equipment;

     o    the rationalization of purchasing and use of raw materials; and

     o    tighter credit control and efforts to reduce the collection period for
          receivables.

Capitalize on Brand-Name Recognition. We intend to capitalize on the success of
our well-recognized Spigadoro and Petrini brand names by extending those
trademarks to innovative or complementary new products, including new pasta and
food products, and product lines, including new products that may be acquired
through strategic acquisitions. We also intend to leverage the success of our
animal feed brand names, including AgriPiu, by extending our franchising network
in Italy, which is currently comprised of approximately 250 stores. We believe
that our brand names communicate product consistency and high quality.

THE PASTA AND FLOUR BUSINESS

We operate two mills at our Bastia Umbra facility near Perugia, Italy that
produce durum wheat semolina for pasta and flour for the bakery industry. A
portion of the flour we produce is sold to third parties. The by-products from
soft and durum wheat grinding is used in our animal feed business. We also
produce, through our Gazzola subsidiary, private label pasta at our Mondovi
facility in the northwest region of Italy.

In connection with our acquisition of Etrusco (Spigadoro Food), we have moved
approximately 83% of the pasta production from our Bastia facility to the more
efficient facility of Etrusco in Foligno, and anticipate that such consolidation
of production will generate substantial cost savings. We are among the few
Italian pasta producers that vertically integrates the durum wheat milling
function with the pasta production process. This allows us to manage the grain
procurement process and to better control the consistency, quality and cost of
our raw materials.

Pasta

Our pasta product line consists of over 250 branded and private label products,
including:

     o    long pasta cuts, such as spaghetti, linguine, fettuccine, angel hair,
          lasagna and tagliatelle;

     o    short pasta cuts, such as penne, elbow macaroni, fusilli, farfalle,
          gnocchi, rigatoni, rotini and ziti;

     o    long and short egg pasta products;

     o    dietary and organic pasta;

     o    specialty flavored pastas and whole wheat pastas; and

     o    cous cous.

                                       4
<PAGE>

In 2001, we sold approximately 98,000 tons of branded and private label pasta
products, realizing total revenues of approximately $54.4 million.

Industrial Flour

Our industrial flour is sold to:

     o    major international food groups such as Nestle, Ferrero, Plasmon and
          Bauli; and

     o    small and medium sized bakeries for the production of cookies,
          panettoni, pandori, pizzas and croissants.

The flour is produced using advanced technologies and a selection of high grade
raw materials imported from countries including the United States, Canada and
France.

In 2001, we sold 44,000 tons of industrial flour, realizing total revenues of
approximately $10.4 million.

PRODUCTS

         Products manufactured and sold by our Petrini food division and their
corresponding trade names include the following:

              PRODUCT                              TRADENAME

              Traditional pasta                    Spigadoro
              Specialty pasta                      Maestro Umbri
              Egg noodles                          LaSfoglia di Casa
              Bakery line                          Spigadoro
              Special flours                       Flourtoba
              Extra virgin olive oil               Cascina

Our Gazzola subsidiary sells a full line of private label pasta products,
including traditional pasta, egg pasta, special seven egg pasta, specialty pasta
and cous cous.

The following table shows the net sales, in thousands of US Dollars, and sales
volume, in tons, for each main product line in our food business for each of the
fiscal years ended December 31, 2001, 2000 and 1999:

Petrini:
-------
<TABLE>
<CAPTION>
                                           YEAR ENDED                      YEAR ENDED                    YEAR ENDED
                                        DECEMBER 31, 2001              DECEMBER 31, 2000              DECEMBER 31, 1999
                                        -----------------              -----------------              -----------------
                                    NET SALES        VOLUME        NET SALES         VOLUME        NET SALES        VOLUME
                                    ---------        ------        ---------         ------        ---------        ------
<S>                                 <C>              <C>            <C>              <C>            <C>              <C>
Traditional types of pasta          $13,150          18,850         $11,820          20,714         $11,297          18,519
Specialty types of pasta              2,631           3,331           4,804           4,300           4,651           4,070
Health and diet pasta                 1,309             619           1,047             489           2,469           2,640
Industrial flour                     12,032          44,393          11,287          42,290          11,304          41,668
Other products                        1,393           1,906           1,707           2,139           1,846           2,392
                                    -------          ------         -------          ------         -------          ------

Total                               $30,515          69,099         $30,665          69,932         $31,567          69,289
</TABLE>


Gazzola:
-------
<TABLE>
<CAPTION>
                                           YEAR ENDED                      YEAR ENDED                   YEAR ENDED
                                       DECEMBER 31, 2001               DECEMBER 31, 2000 *           DECEMBER 31, 1999
                                       -----------------               -------------------           -----------------

                                    NET SALES        VOLUME        NET SALES         VOLUME        NET SALES        VOLUME
                                    ---------        ------        ---------         ------        ---------        ------
<S>                                  <C>              <C>            <C>              <C>            <C>            <C>
Traditional types of pasta           $29,402          65,909         $30,781          73,038         $33,530        74,385
Egg pasta                                873           1,002           6,038           7,129           6,328         6,386
Specialty types of pasta               6,891           8,160           3,896           6,881           2,907         4,504
                                     -------          ------         -------          ------         -------        ------

Total                                $37,166          75,071         $40,715          87,048         $42,765        85,275
</TABLE>


                                       5
<PAGE>



*    Reflects a full year of operations. We acquired Gazzola in May 2000 and,
     consequently, actual results of Gazzola are included in our financial
     statements only since May 3, 2000.

RAW MATERIALS

Raw materials for the production of pasta and flour are readily available and we
have not experienced supply interruptions. We are not dependent on any single
supplier.

The main raw materials used in the production of pasta and flour are wheat,
semolina, eggs and gluten. The semolina used at our Bastia and Foligno
production facilities for the production of pasta is entirely supplied by our
own mill at Bastia, which mills 45,000 tons of durum wheat each year. The
semolina used by Gazzola is primarily supplied by third parties, although a
small portion is supplied by our Bastia mill.

We purchase our durum wheat from farmers, cooperatives and importers. Ninety
percent of this durum wheat comes from Italy. This purchasing method ensures
that the extracted semolina meets our specifications. We believe that using an
integrated production cycle is an essential element in producing high quality
pasta.

The price of durum wheat has fluctuated in past years by as much as 35%. We
believe that due to the new European Union agricultural policy that provides for
the elimination of duties relating to imports from non-European Union countries
and for the support of national farming, the price of wheat will become more
stable in the future.

We purchase our packaging materials for pasta, including flexible films,
cardboard containers and boxes, from external suppliers. We believe that we have
adequate sources of packaging supplies.

PRODUCTION

In connection with our Etrusco acquisition, we have transferred approximately
83% of the pasta production from our Bastia Umbra plant into the newly acquired
plant at Foligno, approximately 15 miles from Bastia Umbra. This Foligno plant
is more efficient than Bastia, and has a daily production capacity of 130 tons.
We continue to produce both semolina, which is used to make pasta, and
industrial flour at our Bastia Umbra facility.

Pasta's primary ingredient is semolina, which is extracted from durum wheat
through our milling process. Each variety of durum wheat has its own unique set
of protein, gluten content, moisture, density, color and other attributes that
affect the quality and other characteristics of the semolina. We blend semolina
from different wheat varieties.

Durum wheat is shipped to our production facility, directly from collection
warehouses, by our contract truckers. The durum wheat delivered to the facility
is sampled, blended and pre-cleaned. Next, the wheat is tempered by raising its
moisture content to the optimal level required for milling. The cleaned and
tempered wheat is then conveyed to the mill where grinding, sifting, and
purifying processes extract the semolina. Semolina is then pneumatically
distributed from the mill to the pasta production area of the facility. Gazzola
purchases most of its semolina from third party suppliers.

After being mixed with water, the semolina is extruded into the desired pasta
shapes, travels through computer-controlled high-temperature dryers and is
stabilized at room temperature. We then package the pasta in a wide variety of
packaging configurations on highly-automated film, carton and bulk packaging
systems and forward it through automated conveyors to the distribution center to
be palletized and stored prior to shipment.

Our entire pasta production process is controlled by programmable logic
controllers that enable all of the production lines to be operated and monitored
by minimal staff.

The quality of our pasta products is tested through regular internal laboratory
testing on physical characteristics such as color, presence of impurities, shape
and consistency following the cooking process, including the loss of starch and
proteins. Our use of bronze molds is a key element in ensuring the production of
high quality pasta.

                                       6
<PAGE>

The production of industrial flour involves the feeding of unprocessed wheat
into a series of automatic milling cylinders followed by an extended sieving
process. Flour obtained in this way is then packaged, boxed and stored in a
warehouse until it is shipped.

DISTRIBUTION

Our Petrini pasta distribution center is located in our Foligno facility and our
Gazzola pasta distribution center is located in our Mondovi plant. Warehousing
and distribution facilities are integrated with our production process.

The principal channels of distribution for Petrini were traditional retail
outlets and wholesale distributors, while Gazzola sells principally to
supermarket chains and through import distributors. We produce a significant
amount of health and diet pasta that is sold by other companies under their own
brand names. We arrange for the distribution of our pasta products to our
customers in Italy, using contract carriers to transport products to their final
destination. We can usually satisfy client demand within 3 or 4 days.

Most of our customers use inventory management systems that track sales of
particular products and rely on reorders being rapidly filled by suppliers. We
work with our customers to forecast consumer demand, which allows us to
anticipate customer demand.

SALES AND MARKETING

Pasta

The following chart shows our sales of pasta and flour products, in thousands of
US Dollars, in our major markets for the years ended December 31, 2001, 2000 and
1999:

       Petrini:
       -------

                           YEAR ENDED        YEAR ENDED        YEAR ENDED
                           DECEMBER 31,      DECEMBER 31,      DECEMBER 31,
                              2001              2000             1999
                              ----              ----             ----

Italy                       $24,400           $22,705          $24,299
Japan                         1,124             1,881            2,047
United States                   290             1,319            1,355
South Korea                     765               687              675
Denmark                         609               320              470
Australia                       377               282              244
Portugal                        330               235              330
Lebanon                         247               141              183
France                          330               188              277
Other countries               2,043             2,907            1,687

Total                       $30,515           $30,665          $31,567

       Gazzola:
       -------

                          YEAR ENDED        YEAR ENDED        YEAR ENDED
                         DECEMBER 31,      DECEMBER 31,      DECEMBER 31,
                             2001               2000*              1999
                             ----               -----              ----

Italy                        $2,710            $5,849           $8,051
France                       22,763            22,586           25,000
Germany                       5,053             4,365            1,825
United Kingdom                1,441             2,797            2,510
Europe (Other)                2,231             2,614            2,212
North Africa                  1,745             1,606            2,139
Middle East                     418               236              210
United States                   222               184              282
Other countries                 583               477              536

Total                       $37,166           $40,714          $42,765

                                       7
<PAGE>


*    Reflects a full year of operations. We acquired Gazzola in May 2000 and,
     consequently, actual results of Gazzola are included in our financial
     statements only since May 3, 2000.

Approximately 20% of the pasta volume produced by us is sold in Italy. Of this
amount, approximately 50% of pasta sales are effected directly by us to our
clients while the remaining 50% of sales are carried out by a sales organization
consisting of 80 independent agents. Most of these sales arrangements are for
indefinite periods, and we generally cannot terminate such arrangements without
paying an indemnity under the Italian Civil Code. The amount of such indemnity
varies from contract to contract. Under these arrangements, products are usually
ordered, produced, sold and shipped within 30 days. As a result, we do not
generally have any significant backlog of orders. We have also entered into
supply arrangements under which we manufacture private label pasta products for
certain of our customers in quantities established in advance. The prices of our
private label pasta are generally tied to a market price near the time of order.

In the United States, we have during the past approximately 18 months begun to
target the higher margin food service business serving restaurants, hotels and
catering. Spigadoro pasta is currently offered in approximately 400 upscale
restaurants in the U.S. and we are expecting to add additional restaurants
throughout the year.

We also sell approximately 80% of our pasta products outside of Italy. Our
exports are generally sold to importers, who then resell them abroad, and to
supermarket chains that resell them through their retail outlets. We have
distribution agreements with distributors in several countries located in
Southeast Asia, which accounted for approximately 2.3% of our total food
division revenues for the year ended December 31, 2001.

We market our pasta, both in Italy and abroad, principally through two
distribution channels:

     o    Retail: The retail distribution channel consists of shops and
          supermarkets that sell various types of pasta both with our brands and
          private labels to consumers. Retail distribution accounts for the
          majority of pasta distribution by us; and

     o    Food Service or Catering: The food service distribution channel is
          comprised of distributors who supply restaurants, hotels, schools and
          hospitals.

Flour

Approximately 50% of our production of industrial flour is sold to large
companies, such as Ferrero, Nestle and Plasmon, for use in producing
confectionery products. The remaining 50% is sold through our sales agents. All
of our flour sales are made in Italy.

COMPETITION

We operate in a highly competitive environment with numerous well-established
Italian, regional and foreign companies, and many smaller companies. Our
competitive environment depends to a significant extent on the aggregate
industry capacity relative to aggregate demand for pasta products. We believe
there is worldwide over-capacity in the industry, and as a result, there has
been consolidation, which is expected to continue in the future. We believe that
consolidation and over-capacity has placed significant pressure on price,
thereby increasing competition. We compete for:

     o    the procurement of raw materials;

     o    the development of new products and product lines;

                                       8
<PAGE>

     o    the improvement and expansion of previously introduced products and
          product lines; and

     o    the production, marketing and distribution of our products.

Our competition in Italy includes:

     o    Barilla, the largest pasta producer in Italy; and

     o    approximately 150 other Italian pasta producers, of which
          approximately 50 have a potential production capacity of over 100 tons
          per day.

We believe that no pasta producer other than Barilla has more than 10% of the
Italian market.

Compared to us, some of our competitors have:

     o    longer operating histories;

     o    broader product lines;

     o    significantly greater brand recognition;

     o    greater production capacity; and

     o    greater financial, marketing and other resources.

Our products also compete with a broad range of food products. Competition in
these markets generally is based on product quality and taste, pricing,
packaging, customer service and logistics capabilities.

In May 1995, we and 20 other Italian pasta producers were named as subjects of a
petition filed with the United States International Trade Commission and the
Department of Commerce by producers of pasta in the United States, including
Borden, Hershey and Gooch Foods, Inc. The petition alleged that the pasta
industry in the United States was materially injured or threatened with material
injury by reason of certain imports from Italy and Turkey that were being
subsidized and sold in the United States at less than fair market value. In
connection with the petition, the International Trade Commission instituted
anti-dumping investigations covering the period from October 17, 1995 through
December 31, 1996. As a result of the investigations, the Department of Commerce
instructed United States customs officials to assess countervailing duties on
certain pasta exporters, based on net subsidy rates. An ad valorem rate of 2.27%
was applied to exports by Petrini for the period of October 17, 1995 to December
31, 1995. Such practices by American pasta producers or by exporters, if
continued or increased, may materially adversely affect our ability to expand in
the United States market. We cannot predict whether we will be subject to review
by the Department of Commerce again, or what impact any such review may have on
the importation of pasta into the United States.

THE ANIMAL FEED BUSINESS

We produce a complete variety of animal feed products for industrial breeders,
family-owned breeding farms and domestic pets. Animal feed products distributed
to industrial breeders include specific lines for the nutrition of dairy cows,
beef cattle, pigs, rabbits, birds, sheep, goats and horses. Animal feed products
distributed to family-farm type breeding establishments include feed for
rabbits, sheep, goats, birds and horses. We also provide ancillary services to
our customers, including advisory and veterinary services. In addition, we
develop, produce and distribute a large variety of feeds for cats, dogs and
other domestic pets.

PRODUCTS

We offer over 600 animal feed products. The following table shows the net sales,
in thousands of US Dollars, and sales volume, in tons, for each product line in
our animal feed business for each of the fiscal years ended December 31, 2001,
2000 and 1999:

                                       9
<PAGE>
<TABLE>
<CAPTION>
                                YEAR ENDED                           YEAR ENDED                       YEAR ENDED
                            DECEMBER 31, 2001                   DECEMBER 31, 2000                 DECEMBER 31, 1999
                            -----------------                   -----------------                 -----------------

                       NET SALES          VOLUME            NET SALES         VOLUME          NET SALES          VOLUME
                       ---------          ------            ---------         ------          ---------          ------
<S>                      <C>               <C>                <C>             <C>              <C>               <C>
Dairy cows               $30,333           138,460            $26,238         126,069          $26,282           130,544
Pigs                       5,848            24,896              6,717          29,939            7,194            33,300
Birds                     19,455            84,994             14,138          56,125           14,636            60,508
Rabbits                   13,294            61,331             13,415          65,252           12,845            62,102
Beef cattle                9,064            43,502              9,390          46,639            9,002            45,437
Pets                       5,111             9,676              4,645           8,661            4,693             8,616
Sheep and goats            2,603            12,911              2,603          13,516            2,408            12,481
Horses                       716             2,947                801           3,456              859             3,656
Others                     5,665            24,044              9,156          38,797           10,174            33,428
                         -------           -------            -------         -------          -------           -------

Total                    $92,089           402,761            $87,103         388,454          $88,093           390,072
</TABLE>

Our animal feed products for farmyard animals include specific lines for the
natural nutrition of dairy cows, beef cattle, pigs, rabbits, birds, sheep and
goats and horses. Set forth below is a description of the some of our major
product lines:

Dairy Cows

We produce and market a complete line of dairy cow feed products. We believe
that the success of our dairy cow feed business is largely a result of the
implementation of innovative feed programs aimed at improving the yield of feed
and the launching of high quality products such as "Casea" and "Lacta" which
have resulted from our research and development programs. We assist our
customers in increasing production, reducing costs and decreasing the amount of
phosphorus and ozone emissions released into the atmosphere by implementing a
nutritional model developed by Cornell University and utilizing our proprietary
computer software to reformulate our animal feed products for dairy cows. We
also maintain a field staff who work with dealers and customers to develop
specialized products, programs and services to meet their individual needs.

Beef Cattle

We produce and market a complete line of beef cattle feed products. As a result
of tighter European Union regulations and the mad cow disease scare, feed
producers are under increasing pressure to ensure a high quality product at all
stages of the food chain. Consequently, we reorganized our beef cattle feed
production and focused our research and development activities on:

     o    studying the metabolism of beef cattle;

     o    transforming the traditional feeding system; and

     o    designing various products and innovative feeding programs.

Based on our research and development activities, we implemented a special
program to guarantee the production of high quality feed and began to produce
and market our "Cotton Beef" product line, which increases the amount of protein
in beef cattle, and other high quality beef cattle feed products. We believe
that the success of our beef cattle feed line is primarily due to our ability
to:

     o    implement innovative feeding programs; and

     o    offer high quality products, such as "Cotton Beef" animal feed.

Pigs

We produce and market a complete line of pig feed products. Our P.A.S.T.O. pig
feed line is part of our "Cross System" program that was launched in 1998. This
system is a composed nutrition program structured on the breeders' specific
needs and demands that allows the breeder to optimize characteristics such as
the fat/lean meat ratio in pigs, which is important in the production of Parma
Ham. The P.A.S.T.O. pig feed line contains polyunsaturated fatty acids to
address the health concerns of consumers.

                                       10
<PAGE>

Rabbits

We produce and market a complete line of rabbit feed products. Our product
brands for rabbits are "Alfa" and "Biosana" for industrial breeding. Biosana is
aimed at guaranteeing the delicate bacterial-intestinal balance of the digestive
system of the rabbit and allows breeders to considerably reduce the use of
pharmaceutical additives, thus reducing costs to breeders.

Birds

We produce and market a complete line of feed products for birds, such as
chickens, turkeys and ducks. The Italian meat bird (including broiler chickens,
turkeys and ducks), and egg production industries are highly concentrated with a
relatively small number of very large producers. As a result of the relative
simplicity of the diet and the large-scale operations in this market, breeders
generally manufacture their own animal feed. Accordingly, the available market
for bird feed sales is small relative to the amount of feed consumed in the meat
bird and egg production industries.

The breeding of birds, in particular poultry, at the domestic level is quite
widespread in Italy. Many Italian consumers of poultry choose to breed their own
poultry because they can control the quality of the breeding process.
Consequently, we have created the "Sani Sapori" and "Grani" brands of bird feed
products that allow breeders to obtain proven quality through an accurate
selection of raw materials and constant monitoring of production. Breeders have
increased their sensitivity towards healthy feeds and, as a result, we have
launched our "Il Biologico" product line that utilizes only raw materials
derived from all natural organic agriculture.

RESEARCH AND DEVELOPMENT AND QUALITY CONTROL

General. Our research and development and quality control department is centered
at the Bastia Umbra Research and Quality Control Center, and includes an
internal staff of 15 people, including technical staff and nutritionists. We
also maintain laboratories at each of our production facilities for the purpose
of quality control. Our research, development, and quality control department
has advisory arrangements with a number of agricultural programs at various
Italian agricultural and veterinary medicine universities, such as Parma,
Bologna, Perugia and Milano. We also have relationships with foreign
institutions and universities including:

     o    Cornell University;

     o    Institute National De Recherche Agromonique;

     o    Scottish Agricultural College-Edinburgh;

     o    Meat Quality Institute-Bristol; and

     o    University of Wisconsin Department of Animal Science.

For research purposes and to assist our field-based technicians, we designed a
herd management software program called "RAAN," which stands for Ration
Analyser, and a raw material management program called "Feed Manager," based on
a model developed by Cornell University. The Feed Manager program:

     o    optimizes raw material utilization in relation with the nutritional
          facts requested; and

     o    contributes to environmental impact reduction by decreasing phosphorus
          and ozone emissions in the atmosphere.

Our researchers have gained extensive knowledge of the nutritional composition
and values of the primary ingredients used in feed, the full range of acceptable
substitute ingredients and process technology. We utilize the extensive
knowledge of our research and development department to develop:

     o    high-performance, value-added feed products;

                                       11
<PAGE>

     o    breeding programs and methods; and

     o    techniques designed to optimize the genetic performance potential of
          animals.

Our products are designed to provide the balance of nutrients that meet the
needs of a particular species of animal at each phase of its life cycle. We
believe that the scope of our research and development activities and the
synergies created from conducting research across various product lines and
species provide us with a significant competitive advantage.

Petrini Institute. In June 2000, we established the Petrini Institute, based at
our Bastia Umbra site. The Petrini Institute's mission is to acquire, confirm,
verify and disseminate the latest technological developments in animal feed to
the Italian farming community through the technical and commercial structure of
Petrini S.p.A. The Institute's mission is organized in the following phases:

     o    Experimentation. Designed to validate certain scientific information
          that has been published or acquired through Petrini's various contacts
          with the principal national and international research associations or
          with agri-food and pharmaceutical multinationals. Ongoing links are in
          place with several leading universities in Italy. The validation and
          the applied research activity is tested in "experimental farms", one
          for each animal species, and in "reference farms" that are located
          across Italy.

     o    Training. An important part of the Institute's task is to train and to
          keep up to date the technical and commercial staff of Petrini, who are
          working and assisting farmers as part of their day-to-day commercial
          activities. The Petrini Institute also produces a variety of herd
          management software programs.

     o    Dissemination of Information. This is done through the web site
          www.petriniinstitute.org, through newsletters, workshops, meetings and
          congresses. These all represent good ways to acquire credibility and
          references for both the Petrini Institute and Petrini.

Our research and development and quality control expenditures were approximately
$736,000, $708,000 and $940,000 for the fiscal years ended December 31, 2001,
2000 and 1999, respectively.

RAW MATERIALS, PACKAGING AND PRICING

The principal raw materials used for the production of animal feed are vegetable
products, the by-products of our pasta and flour business, flour and food
integrators. Packaging represents a small part of feed production costs.

Approximately 15% of the raw materials used by us for the production of animal
feed is provided internally from the by-products of our flour processing
operation. The remainder of the raw materials we use are acquired from large
national and foreign companies and local cooperatives. We do not depend to a
significant extent on any single supplier. All of the raw materials are readily
available and we have not experienced a material interruption in supply.

The raw materials we purchase are usually delivered to a seaport and then
transported either by freight or common carrier to our seven manufacturing
facilities located throughout Italy. As a result, raw material costs may vary
substantially among our manufacturing facilities due to local supply and demand
and varying freight costs.

The prices of many of our raw materials may be volatile. We typically use the
futures markets only for purchasing soybean meal. We generally price our animal
feed products based on the cost of raw materials, packaging and certain other
costs plus a conversion charge, which includes a profit factor, and periodically
adjust our prices based on fluctuations in raw material and packaging costs.
Competitive and other factors have at times limited our ability to increase
prices. There can be no assurance that future price increases will be obtained
in the event of increased raw materials costs.

We believe that one of our major strengths is our ability to obtain an optimal
feed composition at reduced costs by selecting economical raw materials without
compromising nutritional values.

                                       12
<PAGE>

PRODUCTION

In the animal feed industry, potential manufacturing economies of scale are
generally not sufficient to offset the cost of shipping products significant
distances because raw materials, which make up a large percentage of finished
products, are often available locally. As a result, we operate primarily in
central and southern Italy with a network of six manufacturing facilities with
sufficient capacity to meet the demands of the local market in which each
facility is located. We produce approximately 97% of our animal feed products at
our manufacturing facilities. Approximately 3% of our animal feed products are
produced by third parties, who ship the products to our manufacturing facilities
for distribution. Each of our manufacturing facilities is self-contained, from
production to storage and delivery, so as to meet the differing needs of local
customers.

Before we process our raw materials, we sample them for quality control
purposes. The raw materials are then unloaded and sampled for quality purposes.
The basic underlying production process consists of combining the raw materials
to form a feed product that is then mixed with nutritional additives, such as
vitamins, minerals and amino acids, and in some cases, medications.

We sell the resulting products in a variety of forms, including flour, nuts,
cubes, crumble, flakes and pellets. The feeds produced are either the "complete"
type, which are ready to use, or the "supplementary" type, to which other
products must be added by the breeder.

Our feed formulas are based upon the nutrient content as determined through our
proprietary scientific research. When the price of certain raw ingredients
increases, we can generally adjust feed formulas by substituting lower cost
alternative ingredients to produce feed with equivalent nutritional value.

In June 1998, we initiated steps to comply with ISO 9002 Certification, which
ensures that we manufacture our products in conformity with European standards.
This certification was granted to our pasta plant in Bastia Umbra in the third
quarter of 2000 and we expect that certification will be granted for our other
plants in the second quarter of 2003. The processes put in place to attain such
certification will ensure and demonstrate the high quality of our products.

DISTRIBUTION

Animal feed is produced with fresh ingredients and, as a result, delivery must
be rapid. We deliver approximately 1,550 tons of animal feed on a daily basis to
supply breeders and our AgriPiu franchise stores.
See "--Sales and Marketing."

Our products are distributed through a network of external carriers under
long-term agreements. The ability to supply certain clients directly has been a
factor in determining the location of certain of our manufacturing plants. We
believe our plants are well situated to service our customer base across Italy.

Our success depends upon an effective system of distribution for our products.
While our method of delivery has been reliable and available at acceptable rates
thus far, there can be no assurance that we will continue to be able to
negotiate acceptable freight rates in the future and that delivery will not be
disrupted for reasons including adverse weather, natural disasters or labor
disputes in the trucking industry.

SALES AND MARKETING

We primarily market our animal feed products in Italy, through a number of
channels, including:

     o    direct sales to industrial breeders;

     o    our franchised network of AgriPiu stores; and

     o    other retail stores.

Direct Sales

We sell our products directly to approximately 4,400 industrial breeders. We
sell approximately 57% of the animal feed we produce directly to industrial
breeders through a network of exclusive agents. These agents also provide
breeders with a series of ancillary services of a health and nutritional nature.

                                       13
<PAGE>

We also sell the animal feed we produce to approximately 6,900 other clients
through a network of over 121 agents who work at the local level throughout
Italy. The price of our animal feed for farmyard animals includes certain
services, such as technical assistance. We also use marketing efforts and trade
shows to generate new business and expand sales to existing customers.

A number of factors impact the demand for particular animal feed products,
including the price of grains and the price of the end-products of animal
producers. When the price of grains has been relatively high, more of our
customers have tended to purchase feed of the "complete" type and our sales
volume has been correspondingly higher. During periods when commodity prices,
particularly for corn, have been relatively low, animal breeders have tended to
provide their own grains, resulting in decreased volume, and have purchased feed
of the "supplementary" type, concentrated and with nutritional additives, which
have higher per unit margins.

In addition, sales of animal feed products may be influenced by animal or
food-related diseases. For example, in fiscal 2000 a dioxin plague affected
North Italian chicken farmers and the arrival of Mad Cow Disease (BSE) in Italy
resulted in significant reductions in Italian consumption of beef and milk. Foot
and mouth disease has also created significant public health scares in other
parts of Europe and there can be no assurance that this disease will not spread
to Italy. These and other diseases may influence significantly the behavior of
Italian consumers, who may reduce their consumption of the affected meats. Such
changing consumption habits, together with the potential slaughter of affected
livestock, is likely to adversely affect demand for feed products for the
affected animals. Although our ability to supply feed to most major livestock
and our nationwide presence in Italy may help offset these reductions in demand
through increased sales of feed for other animals, there can be no assurance
that diseases affecting livestock will not have an adverse effect on our
operations in the future.

We develop and sell our products for our farmyard animal business as part of a
package that includes nutrition and management programs. Our nutrition programs
include information and services regarding the care of the animals and their
facilities, as well as nutritional, genetic and breeding counseling. We employ
134 sales representatives and technical services staff, including approximately
30 field-based veterinary consultants, who work closely with customers to help
ensure that our feed products, programs and services are matched with the animal
producer's facilities and overall management practices, as well as the genetic
potential of the specific animal species. To support increasingly sophisticated
customers, in areas with the highest number of breeding farms, approximately 75%
of our salespeople are specialists who focus on individual species or
distribution channels.

We believe that animal feed represents, on average, about 70% of the total costs
of production of animal breeders. We also believe that the quality and yield of
our products are important competitive features of our business. As a result,
our investment in product research and development is considered critical, as is
supporting our sales with advisory and veterinary services for our customers.
Our commitment to our research and development activities has enabled us to
produce high quality animal feed products that are sold to our customers at
competitive prices. We believe that these areas represent our most important
strengths. We believe that the continued market leadership of our various
products and programs will depend, in part, upon maintaining a cost-effective
balance among: weight gain, feed efficiency, yield, meat, milk and egg quality
and animal health and price.

We have also entered into various agreements to provide animal feed and related
services to breeders, receiving in return payment based on the quantity of feed
provided by us and the increase in weight or yield of the animals. These
agreements allow us to test and constantly improve the quality of our animal
feed and services by virtue of our indirect participation in the breeding of
animals.

AgriPiu Stores and Other Retail Stores

We sell feed to approximately 2,500 agricultural retail stores, of which
approximately 250 have a franchising agreement to use our AgriPiu trademark.
AgriPiu stores, which are located throughout Italy, sell animal feed to family
farms and retail customers for the breeding of domestic animals. They also offer
a complete range of products for animal care. The agreements with the AgriPiu
franchisees generally provide that we furnish support for the marketing of our
products, and contain obligations on the franchisee to maintain an adequate
stock of products and to ensure that 100% of the sales of animal feed of the
stores are made up of our products.

                                       14
<PAGE>

COMPETITION

Animal Feed

The animal feed industry is currently going through a phase of consolidation in
Italy, and we believe that this trend will continue. We believe that our market
share is currently approximately 6% of the total non-integrated animal feed
market in Italy.

Strong competition exists among national as well as local producers. Some of our
competitors have:

     o    longer operating histories;

     o    broader product lines;

     o    significantly greater brand recognition;

     o    greater production capacity; and

     o    greater financial, marketing and other resources.

Our major competitors in the animal feed market are:

     o    in Northern Italy-Purina, Raggio di Sole and Veronesi, Martini,
          Progeo, Ferrari and Sagip;

     o    in Central and Southern Italy-Martini, Mignini, Raggio di Sole,
          Nicolai, Valigi, Dell'Aventino, Russo e Pezzullo.

To date, we have been successful at generating business directly with some large
animal breeders. However, as animal breeders become larger, they historically
have tended to integrate their business by acquiring or constructing feed
production facilities to meet some or all of their requirements and,
consequently, have relied less on outside suppliers of animal feed. As the
consolidation of animal breeders continues, the available market for commercial
animal feed may be reduced if breeders integrate feed production into their
business, thereby increasing competition.

We distinguish our company from our competitors through:

     o    our range of high quality products;

     o    our national production and distribution capacity; and

     o    offering customers assistance during product utilization.

Our services include assistance in the technical and economic management of
breeding and food and veterinary services. We believe that this supportive
strategy creates strong customer loyalty and allows for premium pricing. In
addition, our extensive expertise in animal nutrition requirements and the
nutritional content of various ingredients, developed through our research and
development activities, combined with our manufacturing expertise and ingredient
purchasing capabilities, allow us to use lower-cost ingredients, as well as
alternative ingredients, to a greater extent than many of our competitors.

Pet Food

A small portion of our animal feed sales are from the sale of domestic pet food.
The major companies that produce and market pet food in Italy are national or
international conglomerates that are substantially larger than we are and
possess significantly greater financial, marketing and other resources than we
possess. We compete for access for shelf space on the basis of the quality and
price of our pet food products.

We believe that we differentiate ourselves from animal feed manufacturers that
also sell pet food by offering:

                                       15
<PAGE>

     o    high quality products; and

     o    national production and distribution capabilities.

Much of the competition in the animal feed and pet food industries centers
around price due to the commodity-like aspects of the basic product lines.
However, we believe we are able to mitigate this price-oriented competition
somewhat by focusing our efforts on high-performance, value-added products which
are designed to be cost effective on the basis of weight gain, feed efficiency,
yield, animal health and price. To the extent that there is significant price
competition, our operating results and cash flow could be adversely affected. We
also compete on the basis of service by:

     o    providing training programs for our customers;

     o    using species specialists with advanced technical qualifications to
          consult with our customers;

     o    developing and manufacturing customized products and feeding programs
          for our customers; and

     o    offering various financing assistance programs to attract and retain
          dealers and direct customers.

RECENT TRANSACTIONS

Extension of Working Capital Facility.

In October 2001, our Euro 23.2 million ($20.6 million) working capital facility,
originally secured in April 2000 in connection with the Gazzola acquisition,
matured. Since October, we have been negotiating with a consortium of banks
regarding a refinancing of this facility. We have recently reached an agreement
with the various banks that provides for an extension of the original facility
for a period of 24 months from October 2001; provided, that we will be required
to repay approximately 10% of the principal amount in April 2003, 50% of the
outstanding principal amount in June 2003, and the remaining outstanding balance
in October 2003. Outstanding amounts will bear interest at a rate equal to
EURIBOR plus 125 basis points.

In addition, pursuant to the new extension agreement, we will be required to pay
portions of the outstanding balance beginning in April 2003, and we anticipate
that we will be required to finance all or a portion of such prepayment
obligations prior to the new maturity dates. We currently have no firm
agreements or arrangements to obtain any such financing, and our inability to
secure such financing would have a material adverse effect on our operations and
financial condition.

Acquisition of Etrusco.

In December 2001, we acquired Pastificio Etrusco S.p.A. for stock valued at
approximately $5,000,000, or 3,372,094 shares (subject to adjustment as set
forth below) based upon a contractually agreed upon valuation of $1.50 per
share. The market value of our common stock immediately prior to the closing was
$0.29 per share and $0.14 on April 12, 2002. Etrusco's sales for fiscal 2001
were approximately $11.5 million. The principal motivating factors for the
acquisition were (1) the opportunity to create production efficiencies by
consolidating our pasta production in the modern facility operated by Etrusco in
Foligno, near our facility in Bastia, and (2) the opportunity to gain entry into
the organic food niche. To date, we have transferred approximately 83% of the
pasta production from our Bastia facility to the more efficient facility of
Etrusco. We anticipate that such consolidation of production will generate
substantial annual cost savings.

The shares we issued as consideration for the acquisition will be subject to a
lock-up and cannot be sold until December 22, 2003, at which time up to 50% of
the shares can be sold. The remaining 50% of the shares are subject to sale
beginning on December 22, 2004. The lock-up will be released as to a percentage
of the shares, which percentage will be equal to the percentage of any of our
shares held by the Vertical Group that might be sold by Vertical prior to the
expiration of the lock-up.

                                       16
<PAGE>

Pursuant to the acquisition agreement, we agreed that, in the event that our
common stock is not valued at $1.50 per share or more as of the closing of the
stock market on the last trading day prior to each of the two dates above, we
would issue to the seller additional shares of common stock to compensate them
for the difference between $1.50 per share and the then current market value of
our common stock. We also have the right at any time to repurchase the shares
for $1.50 in cash or to pay to the seller in cash the difference between $1.50
and the price at which any shares are sold. The existence of the price
protection provision could require us to either pay in cash the difference
between approximately $5 million and the then current market value of the shares
or issue a substantial number of additional shares to the seller in the event
that the market price target is not achieved and we elect not to pay cash,
thereby causing potentially substantial dilution to stockholders.

The share price value and related market price target set forth above was
determined by negotiation between us and the seller, and should not be construed
to imply or predict any future increase in the market price of our securities.

Related Party Loans.

In October 2001, we issued promissory notes in the amounts of $5.3 million, $3.0
million and $3.6 million to Gruppo Spigadoro N.V., Bebington Holdings N.V. (an
affiliate of Gruppo Spigadoro N.V.) and Carlo Petrini, respectively, each of
which is a principal stockholder. The Gruppo Spigadoro note is outstanding debt
that remains from the acquisition of Petrini in December 1999 and was amended
and restated to convert the outstanding balance of the previous demand note into
a term loan expiring in December 2002 (or sooner in the event of certain equity
or asset sales). The Bebington note and the Carlo Petrini note were issued in
exchange for new capital provided by such stockholders at the request of the
Italian bank consortium and in connection with the negotiations regarding an
extension of the working capital facility discussed above. The proceeds from
these notes were used by us to contribute additional equity into our Petrini
subsidiary. The loans bear interest at 6% annually and are repayable on December
31, 2002 or sooner in the event of certain equity or asset sales. In the event
the principal amount is not repaid on the maturity date, the entire Bebington
loan and approximately $1.4 million of the Carlo Petrini loan are automatically
convertible into shares of our common stock at a conversion rate equal to 85% of
the average closing sale price of our common stock for the ten trading days
prior to the maturity date. The remaining portion of the Carlo Petrini loan
would be repaid through the assignment by us of a portion of a loan receivable
from our subsidiary Petrini S.p.A., after which assignment Mr. Petrini would
look only to Petrini S.p.A. for repayment of that portion of the loan. In
consideration for the extension of all of these loans, we issued to Carlo
Petrini and Gruppo Spigadoro N.V. 600,000 and 2,400,000 shares of our common
stock, respectively.

MANAGEMENT INFORMATION SYSTEMS

Our production, distribution, sales and marketing operations are supported by a
computer system that uses software which has been tailored to our management
processes and integrates our production, purchasing, order entry, inventory
management, distribution and accounting systems. Our management information
systems were recently upgraded in anticipation of our growth and desire to
continue to offer our customers value-added, efficient services. We have
invested substantial amounts in electronic data interchange and efficient
consumer response systems to streamline the order, invoicing and inventory
management functions.

TRADEMARKS AND PATENTS

We hold a number of registered and common law trademarks that we believe to be
of considerable value and importance to our business. Our main trademarks
include the following:

<TABLE>
<CAPTION>
Animal Feed
<S>                 <C>                    <C>                <C>                 <C>
Casea               Alfa                   Activa             Lacta               Biosana
Cotton Beef         Integra                First              Vispo               Nutrilinea
Sani Sapori         Ovicomplet             P.A.S.T.O.         Il Biologico        Tradizione
                                                                                  Italiana
Pasta And Flour

Spigadoro           La Sfoglia di Casa     Voglia di Pasta    Flourtoba
</TABLE>

                                       17
<PAGE>

We own the trademarks listed above and we have registered those trademarks in
Italy and in our other principal markets. In addition, we have filed trademark
applications or registrations for our trademarks in China, Japan, Malaysia,
South Korea, Taiwan, the United States and Venezuela. We believe that all
material trademark registrations are valid and current, and that all licenses
have either been recorded or applications have been filed to record such
licenses where required to avoid forfeiture of our trademarks in our principal
markets.

Our trademarks are widely used in product marketing and are themselves
frequently incorporated into product designs. In view of the importance of our
trademarks, we have a policy to prosecute trademark infringement vigorously.

We are not a party to any material litigation involving our trademarks and there
are no material restrictions on our ability to use our trademarks.

EMPLOYEES

As of March 30, 2002, we had 468 full-time employees and three part-time
employees. Of our employees, 284 work in the pasta and flour business, 138 work
in the animal feed business and 46 perform administrative services.

Employees in Italy in the food sector are covered by a national collective
bargaining agreement that is negotiated between the national association of the
companies within the food sector and the national union. The agreement addresses
work time, benefits, wages and bonuses and other specific issues affecting the
working conditions of our employees. In addition to the national collective
bargaining agreement, individual employers such as us enter into separate local
contracts with the labor unions representing their employees. We are also
subject to a number of similar regulatory and contractual requirements governing
our relations with our managers. Italian law provides that, upon termination of
employment, employees are entitled to receive a severance payment based on
annual salary, length of employment and inflation. As of December 31, 2001, we
had approximately $3.2 million reserved for such termination payments, as
required by Italian law.

We have not experienced any significant work stoppages and believe that our
relationship with our employees is good.

GOVERNMENTAL REGULATION

GENERAL

Many aspects of our operations are subject to government regulation in the
countries in which we operate. Such regulations include those relating to:

     o    the operation of our production facilities;

     o    the production, packaging, labeling and marketing of our products;

     o    environmental regulations;

     o    currency conversion and repatriation;

     o    taxation of our earnings and earnings of our personnel; and

     o    our use of local employees and suppliers.

For example, we are required to obtain licenses and permits, and are subject to
governmental inspections in connection with our operations in Italy, including
licenses and permits relating to the manufacture of pasta and flour, building
codes, safety and usability of plants and other areas of our daily operations.
We are affected by changing taxes, price controls and laws and regulations
relating to the industries in which we operate.

Our animal feed products are also subject to regulation by the Italian Industry
Ministry and the Italian Health Ministry. The Health Ministry regulates all
ingredients that are part of animal feed or that contact animal feed. It also
regulates animal drugs that come in dosage form for administration to animals,
or that are added through water or feed. Our production facilities are also
subject to periodic inspection by a local health agency.

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LABOR RELATIONS

Our employment relations in Italy are governed by numerous regulatory and
contractual requirements, including:

     o    the Italian Civil Code;

     o    the Statute of Laborers;

     o    national collective labor agreements; and

     o    individual employer labor agreements.

The Italian Civil Code addresses:

     o    protection of personal data of employees and consents of such
          employees prior to disclosure;

     o    vacation, illness and maternity leave;

     o    requires employers with more than 35 employees (such as us) to hire at
          least 15% of our total employees from among those in certain protected
          classes; and

     o    upon termination of employment, entitles employees to receive a
          defined compensation payment based on length of employment, employment
          category and compensation.

ENVIRONMENTAL

Our operations, particularly our manufacturing activities, are affected by
Italian environmental protection laws and regulations, such as those governing
discharges into the air and water, the handling and disposal of solid and
hazardous wastes, the remediation of soil and groundwater contaminated by
petroleum products or hazardous substances or wastes, and the health and safety
of employees.

Environmental laws and regulations have changed substantially and rapidly over
the last 20 years and the requirements of these laws and regulations have tended
to become increasingly more stringent, complex and costly to comply with.
Although we believe that we are in substantial compliance with existing material
laws and regulations governing our material business operations, there can be no
assurance that substantial costs for compliance will not be incurred in the
future. Moreover, it is possible that other developments, such as stricter
environmental laws, regulations and enforcement policies thereunder, could
result in additional costs or liabilities to us.

We have conducted a number of environmental audits of our major facilities to
identify and categorize potential environmental exposures and to ensure
compliance with applicable environmental laws, regulations and permit
requirements. This effort has required and may continue to require operational
modifications to our facilities, including installation of pollution control
devices and cleanups. The costs incurred to date by us in connection with the
performance of environmental audits and operation modifications to our
facilities have not been material. To the extent we might incur any such
compliance costs, these costs most likely would be incurred over a number of
years. However, no assurance can be given that future regulatory action
regarding soil or groundwater at our facilities, as well as continued compliance
with environmental requirements, will not require us to incur significant costs
that may have a material adverse effect on our financial condition and results
of operations.

Additionally, we maintain a proactive approach to dealing with environmental
matters and it is our policy to eliminate and minimize generation of wastes at
our facilities through plant operations, process design and maintenance. We have
also implemented management procedures designed to reduce the generation of
hazardous waste and prevent exposure to such substances.

                                       19
<PAGE>

We have been unable to obtain adequate environmental insurance at a reasonable
cost. Although we maintain general liability insurance, this insurance is
subject to coverage limitations, deductibles and exclusions and may exclude
coverage for losses or liabilities relating to environmental issues. As a
result, we cannot assure that liabilities that may be incurred by us will be
covered by our insurance policies, or if covered, that the dollar amount of such
liabilities will not exceed the policy limits. Even a partially uninsured claim,
if successful and of significant magnitude, could have a material adverse effect
on our business, financial condition and results of operations.

The above-mentioned laws identify the liabilities of the employer and/or of the
persons delegated by the employer. Persons who are or were responsible for
releases of hazardous substances may be subject to joint and several liability
for the costs of cleaning up the hazardous substances that have been released
into the environment and for damages to natural resources, and it is not
uncommon for neighboring landowners and other third parties to file claims for
personal injury and property damage allegedly caused by the hazardous substances
released into the environment. Italian environmental law also imposes criminal
penalties upon persons who are or were responsible for releases of hazardous
substances in cases of major damage to natural resources.

Additionally, various Italian laws, regulations and ordinances govern the
removal, encapsulation or disturbance of asbestos containing materials ("ACMs").
Such laws and regulations may impose liability for the release of ACMs and may
provide for third parties to seek recovery from owners or operators of
facilities at which ACMs were or are located for personal injury associated with
exposure to ACMs. We are aware of the presence of ACMs at our facilities, but we
believe that such materials are in acceptable condition at this time. We believe
that any future costs related to remediation of ACMs at these sites will not be
material, either on an annual basis or in the aggregate, although there can be
no assurance with respect thereto.

It is possible that environmental liabilities in addition to those described
above may arise in the future. As a result, we could incur significant future
liability should the laws of the jurisdictions in which we operate change to
impose additional environmental remedial obligations. The precise costs
associated with these or other future environmental liabilities are difficult to
predict at this time.

ENFORCEMENT OF CIVIL LIABILITIES

We are organized under the laws of the State of Delaware. Investors in our
common stock will be able to effect service of process on us in the United
States. However, we are primarily a holding company that holds stock in other
entities and all or a substantial portion of our assets are located outside the
United States. In addition, six of our seven directors and all of our executive
officers are residents of foreign countries and all or a substantial portion of
the assets of such directors and officers are located outside of the United
States. As a result, it may not be possible for investors to effect service of
process upon our directors and officers or enforce judgments of U.S. courts
predicated upon the civil liability provisions of U.S. laws against our
directors' and officers' assets. The market price of our common stock may be
affected by the difficulty for investors to enforce judgments of U.S. courts.

RISK FACTORS

The following factors should be reviewed carefully, in conjunction with the
other information in this Form 10-K and our consolidated financial statements.
These factors could cause actual results to differ materially from those
currently anticipated and expressed or implied in forward-looking statements
made in this Form 10-K and presented elsewhere by our management from time to
time. See "Note Regarding Forward-Looking Statements."

RISKS AFFECTING OUR OPERATIONS

We experience significant fluctuations in our operating results due to a number
of business factors.

Our results of operations have fluctuated significantly in recent years and may
continue to fluctuate in the future. A number of factors have caused and may
continue to cause these fluctuations, including:

     o    price fluctuations for raw materials;

     o    demand for our products;

                                       20
<PAGE>

     o    increased marketing and distribution costs;

     o    pricing and competition;

     o    the timing and scope of new customer and new product volumes;

     o    plant expansion or consolidation and equipment upgrade costs; and

     o    general economic conditions.

Any of these factors may adversely affect our business and financial condition.
Our results of operations for any past or interim periods may not be indicative
of our future performance.

We have incurred net losses of Euro 21.8 million ($19.3 million) and Euro 4.6
million ($4.1 million) for Fiscal 2001 and Fiscal 2000, respectively. Although
we have taken several actions to reverse these losses, there can be no assurance
that our efforts will be successful. At December 31, 2001, we had a working
capital deficit of Euro 28.6 million ($25.3 million) and we will require
sufficient additional funds to continue our current operations.

If we do not obtain sufficient additional funds we may be unable to continue
as a going concern.

During the second half of 2001, with the maturity of our Euro 23.2 million
($20.6 million) working capital facility approaching in October 2001, the banks
that provide necessary credit to our Petrini and Gazzola operations began to
restrict our access to certain of these lines of credit. We have therefore been
operating during the past several months with limited access to credit
facilities required to conduct our business in the ordinary course. Although we
have recently reached an agreement with a consortium of banks to extend the
maturity of the working capital facility until October 2003, these and certain
other banks have not yet restored access to the short-term lines of credit
available to us in June 2001. We have received indications from the banks that
they will restore such lines of credit now that the extension of the working
capital facility has been agreed. We have also received indications that certain
banks may be willing to finance a portion of our outstanding and overdue
accounts receivable, which would also provide us with necessary liquidity.
However, there can be no assurance that the positive indications we have
received will result in a restoration of our access to required lines of credit
or that the banks will provide any additional financing. If we fail to reach
agreement regarding an expansion of our short-term lines of credit or to
otherwise raise additional funds through equity or debt financing or asset
sales, our business, financial condition and results of operations would be
adversely affected and our ability to continue as a going concern could be
jeopardized.

Our substantial debt may adversely affect our ability to obtain additional funds
and increases our vulnerability to economic or business downturns.

Our indebtedness as of December 31, 2001 aggregated approximately $83.7 million.
Accordingly, we are subject to the risks associated with substantial
indebtedness, including:

     o    we have less funds available for operations, future business
          opportunities and other purposes;

     o    our ability to obtain additional financing to repay our debt and for
          acquisitions, working capital, capital expenditures, general corporate
          or other purposes may be impaired;

     o    it may be more difficult and expensive to obtain additional funds, if
          available at all;

     o    we are more vulnerable to economic downturns, less able to withstand
          competitive pressures and less flexible in reacting to changes in our
          industry and general economic conditions; and

     o    if we default under any of our debt instruments or if our creditors
          demand payment of a portion or all of our indebtedness, we may not
          have sufficient funds to make such payments.

Any of these risks may materially adversely affect our operations and financial
condition and adversely affect our stock price.

                                       21
<PAGE>

A portion of our debt is secured by our assets. If we default under the debt
instruments secured by our assets, such assets would be available to the
creditor to satisfy our obligations to the creditor before any payment could be
made to our stockholders.

In addition, our Euro 23.2 million ($20.6 million) working capital facility,
originally secured in April 2000 in connection with the Gazzola acquisition,
matured in October 2001. Since October, we have been negotiating with a
consortium of banks regarding a refinancing of this facility. We have recently
reached an agreement with the various banks that provides for an extension of
the original facility for a period of 24 months from October 2001; provided,
that we will be required to repay approximately 10% of the principal amount in
April 2003, 50% of the outstanding principal amount in June 2003, and the
remaining outstanding balance in October 2003. Outstanding amounts will bear
interest at a rate equal to EURIBOR plus 125 basis points.

In addition, pursuant to the new extension agreement, we will be required to pay
portions of the outstanding balance beginning in April 2003, and we anticipate
that we will be required to finance all or a portion of such prepayment
obligations prior to the new maturity dates. We currently have no firm
agreements or arrangements to obtain any such financing, and our inability to
secure such financing would have a material adverse effect on our operations and
financial condition.

Our strategy of acquiring other companies for growth may not succeed and may
adversely affect our financial condition, results of operations and cash flows.

Our strategy of growth through acquisitions presents risks that could materially
adversely affect our business and financial performance, including:

     o    the diversion of our management's attention;

     o    the assimilation of the operations and personnel of the acquired
          business;

     o    the contingent and latent risks associated with the past operations of
          and other unanticipated problems arising in the acquired business;

     o    the need to expand management, administration, and operational
          systems; and

     o    increased competition for acquisition opportunities and qualified
          employees.

We cannot predict whether:

     o    we will be able to identify suitable acquisition candidates;

     o    we will be able to acquire additional businesses on terms favorable to
          us or at all;

     o    we will be able to successfully integrate into our business the
          operations of any new businesses;

     o    we will realize any anticipated benefits of completed acquisitions; or

     o    there will be substantial unanticipated costs associated with new
          acquisitions.

Because expansion of our operations will likely be predominately in
international markets, acquisitions could also involve risks relating to
operating in other foreign countries, including those relating to:

     o    management of remote operations;

     o    cultural incompatibilities;

     o    currency exchange rates; and

     o    additional legal, tax, accounting and regulatory requirements.

                                       22
<PAGE>

The failure to manage growth effectively may adversely affect our business and
financial condition. We frequently evaluate, and are in preliminary discussions
in connection with, the potential acquisition of assets or equity of businesses
related to our business. However, we have no agreements or arrangements with
respect to any particular acquisitions and we may not be able to complete any
additional acquisitions on terms favorable to us or at all. If we are unable to
acquire additional businesses, our growth may be reduced or eliminated.

In addition, we would require additional funds for acquisitions and integration
and management of acquired businesses. We have no commitments or arrangements
for any additional funds. We cannot predict whether additional funds will be
available on terms acceptable to us or at all. If we cannot obtain funds when
required, the growth of our business may be adversely affected which could
materially adversely affect our financial condition. If we issue our securities
to obtain additional funds, or in connection with potential acquisitions, our
existing stockholders will experience dilution.

We intend to issue our securities in connection with potential future
acquisitions. If businesses we want to acquire will not accept our securities as
payment of all or a portion of the purchase price, we may be unable to make
additional acquisitions, except through the use of cash, the availability of
which cannot be assured.

Our operating results will be adversely affected by charges from acquisitions.

Because we have grown our business through acquisitions, we have historically
incurred significant non-cash charges for depreciation and amortization. As
discussed under "Management's Discussion and Analysis of Financial Condition and
Results of Operations - Financial Accounting Announcements", beginning in Fiscal
2001 we will no longer be required to amortize the cost related to goodwill and
identified intangibles with indefinite lives. Intangible assets with finite
lives will continue to be amortized over their useful lives. Goodwill and
intangibles with indefinite lives will be tested at least annually for
impairment, and impairment charges will be recorded in the period in which they
occur. Moreover, future acquisitions could result in additional amortization
expenses and additional goodwill and indefinite intangibles subject to
impairment tests. The additional amortization and any impairment charges would
reduce our future earnings or increase our future losses, as the case may be. In
addition, if we finance new acquisitions through borrowings, we will also incur
increased interest expense.

The loss of our key personnel may adversely affect our business.

Because we have a limited number of management personnel, we are dependent on
our executives, including Jacob Agam, our Chairman of the Board, Carlo Petrini,
our Co-Chairman of the Board, and Riccardo Carelli, our Chief Executive Officer,
as well as other principal members of our management team and the management
teams at Petrini and Gazzola. Mr. Agam will be providing services to us on a
part-time basis. We cannot assure that any of our management personnel,
including Mr. Agam, Mr. Petrini or Mr. Carelli, will continue to devote
sufficient time to our business. The loss of services of, or a material
reduction in the amount of time devoted to our business by these individuals
could adversely affect our business and financial condition. Competition for
qualified executive officers is intense. In addition, if we are unable to
attract, retain and motivate other highly skilled employees, our business,
prospects and financial condition could be materially adversely affected.

Because we are a holding company, our ability to repay our indebtedness will
depend upon the level of our cash reserves, the distribution of funds from our
operating subsidiaries and our ability to obtain sufficient additional funds.

We are a holding company and substantially all of our operating results will be
derived from the operations of our operating subsidiaries and other businesses
that we may acquire in the future. Our ability to repay our indebtedness will
depend on the level of our cash reserves, and the operating results of our
operating subsidiaries and the distribution of sufficient funds from these
subsidiaries to us. The ability of our operating subsidiaries to make such funds
available to us may be restricted by the terms of their indebtedness and by
applicable law. If our available working capital, together with any
distributions from our subsidiaries, is not sufficient to enable us to repay our
indebtedness, we will be required to obtain additional debt or equity financing
for the repayment of this debt.

Our business may be adversely affected by the potential relocation of our
largest production facility.

                                       23
<PAGE>

Our Bastia plants may need to be relocated due to a rezoning of the land on
which these plants are located. These plants are located on land owned by us in
Bastia Umbra in a region of Italy called Regione Umbria. In 1996, the
municipality of Bastia Umbra initiated a rezoning proceeding to reclassify this
land as residential and public park space. The municipality has since finalized
its rezoning plan, which is now being considered by the government of the
Regione Umbria that must also approve the plan before it can become effective.
Unless the Regione Umbria amends the rezoning plan or we are able to appeal the
decision, we will be required to:

     o    terminate operations at this plant;

     o    possibly terminate the employees who work at this plant; and

     o    relocate these operations to a new location.

Although we do not expect a decision to be finalized in the near future and
would be compensated for the fair value of the property, relocation of these
operations to a new location could materially and adversely affect our business
operations and financial condition as a result of:

     o    operational problems;

     o    production interruptions;

     o    quality control concerns;

     o    delays in shipments; and costs and other risks associated with the
          relocation of these operations and the possible hiring of new
          employees.

INDUSTRY RISKS

Intense competition in the pasta and animal feed industries may adversely affect
our operating results.

We operate in a highly competitive environment and compete with numerous
well-established national, regional and foreign companies, as well as many
smaller companies in:

     o    the production, marketing and distribution of animal feed and pasta
          and flour products;

     o    the procurement of raw materials;

     o    the development and improvement of animal feed and the design of
          optimal animal nutrition and genetic breeding programs; and

     o    the development, improvement and expansion of pasta and flour products
          and product lines.

As compared to us, many of our competitors have:

     o    significantly longer operating histories and broader product lines;

     o    significantly greater brand recognition; and

     o    greater production capacity and financial, management and other
          resources.

As a result, our competitors may be able to:

     o    adapt more quickly to new or emerging production technologies and
          product development;

                                       24
<PAGE>

     o    adapt more quickly to changing market conditions and customer
          preferences;

     o    devote greater resources to the promotion and sale of their products;
          and

     o    respond more effectively to competitive pressures.

Our competitive environment depends to a significant extent on the industry
capacity relative to demand for pasta and animal feed products. We believe that
the worldwide pasta and animal feed industries have significant excess
production capacity. This excess capacity has given rise to intense competition
for sales, often focused on product pricing. A variety of discount programs are
used by industry participants to obtain market share. The effect of such
competition has been to put pressure on profit margins and to involve us in
vigorous competition to obtain and retain product customers. Significant
industry capacity levels above demand for pasta and animal feed products may
materially adversely affect our business and financial condition.

Our direct competitors in our branded pasta business include Barilla, the
industry leader in Italy and among the leaders in the United States, as well as
approximately 45 other Italian pasta producers and several large producers in
the United States. The animal feed industry is highly fragmented, with the bulk
of the industry consisting of national and regional competitors, including
cooperatives. We believe our largest animal feed competitors are:

     o    in Northern Italy: Purina Italia S.p.A., Raggio di Sole Mangimi S.p.A.
          and Veronesi Finaziaria S.p.A.; and

     o    in Central-Southern Italy: Progeo S.c.a.r.l., F. lli Martini & C.
          S.p.A. and Mignini S.p.A.

However, as animal breeders become larger they tend to integrate their business
by acquiring or constructing feed production facilities. As a result, the
available market for commercial feed may become smaller and competition may
increase, which could materially adversely affect our business and financial
condition.

Our financial results may be affected by increases in the costs of raw materials
and packaging.

Our financial results depend to a large extent on the cost of raw materials and
packaging and our ability to pass along to our customers increases in these
costs. Historically, market prices for commodity grains and food stocks have
fluctuated in response to a number of factors, including:

     o    changes in the agricultural policies of the European Community and/or
          the United States government (including farm support programs and
          regulation of genetically modified organisms);

     o    changes in international agricultural and trading policies;

     o    weather conditions during the growing and harvesting seasons;

     o    crop disease or pestilence;

     o    level of international stocks in storage;

     o    currency fluctuations;

     o    shipping costs;

     o    speculations on commodities; and

     o    other factors over which we have no control.

Lower prices for durum wheat and the resulting semolina, when combined with
excess production capacity, places downward pressure on pasta prices and
intensifies competition in the pasta industry. In the event of increases in the
cost for raw materials, we would be required to increase sales prices for our
products in order to avoid margin deterioration. However, because there is
significant competition in the pasta and animal feed industries in Italy, we may
not be able to


                                       25
<PAGE>

increase prices without losing market share. If we are unable to increase prices
in response to increased raw material costs, our business and financial
condition may be materially adversely affected.

Our private label business may be adversely affected by fixed-price production
contracts.

In Italy, supermarket chains typically require that their private label pasta
suppliers enter into a contract to supply pasta at a fixed price. Our Gazzola
private label subsidiary has entered into a number of such agreements. Because
the sales price is fixed for the term of the agreement (typically one year),
unanticipated increases in costs, including raw material costs, would have an
adverse impact on the profit margins associated with such contracts and could
render some contracts unprofitable. Although the contracts generally do not
require that we produce a specified volume, the failure to supply the volume
requested by the customer could jeopardize our relationship with such customer
and could adversely impact our business.

Our animal feed business may be adversely affected by animal or food-related
diseases.

Recent well-publicized animal or food-related diseases present in Europe could
have an adverse effect on our animal feed business. For example, BSE or "mad cow
disease", which has been detected in Italy, and "foot and mouth disease", and
the resulting public health scares have influenced significantly the behavior of
Italian consumers, who have reduced their consumption of meat from the affected
animals markedly. Although the consumption of alternative meats may increase in
response, which may improve our sales of feed for such other animals, there can
be no assurance that these or other diseases will not materially adversely
affect our business and results of operations.

Our business may be adversely affected by, and we may be subject to legal
liability for, defects in our products.

The sale of food products for human consumption involves the risk of injury to
consumers and, to a lesser extent, the sale of animal feed products involves the
risk of injury to animals as a result of:

     o    tampering by unauthorized third parties;

     o    product contamination or spoilage;

     o    the presence of foreign objects, substances, chemicals, and other
          agents; or

     o    residues introduced during the growing, storage, handling or
          transportation phases.

We cannot assure that consumption of our products will not cause a
health-related illness in the future or that we will not be subject to claims or
lawsuits relating to such matters. There can be no assurance that we will not
incur claims or liabilities for which we are not insured or that exceed the
amount of our insurance coverage.

We are dependent upon independent agents and distributors to market our
products.

We market and distribute a substantial portion of our products through a network
of independent agents and distributors and the loss of certain key agents or
distributors could adversely affect our business. In addition to our products,
the independent agents and distributors selling our products typically sell
other food products manufactured by third parties. The performance of our agents
and distributors is outside our control and we cannot predict whether such
agents and distributors will continue to market our products. If we are unable
to attract, retain and motivate other highly skilled agents and distributors,
our business could be materially adversely affected. In addition, our
arrangements with several of our agents are governed by a national collective
labor agreement. If we terminate any of these relationships, we would be
required to pay an indemnity that could, in the aggregate, be material to our
business.

Our business may be adversely affected by our dependence upon our suppliers.

We require a high volume of raw materials to produce our products. Our inability
to obtain these raw materials in a timely manner could adversely affect our
business and financial condition. We do not have any long-term contracts with
our suppliers. The availability of such raw materials is affected by factors
such as:

                                       26
<PAGE>

     o    demand for raw materials, including durum wheat;

     o    weather conditions during the growing and harvesting seasons; and

     o    political and economic downturns in the countries in which such
          suppliers are located.

We are dependent upon third parties for the delivery of our raw materials and
products.

Our raw materials, including durum wheat and commercialized products, are
shipped to our production facilities from different collection centers by third
parties. Our finished products are then transported by third parties to our
customers in Italy and elsewhere. An extended interruption in our ability to
ship raw materials to our facilities, or finished products from our facilities,
could adversely affect our business and our financial condition. If we were to
experience an interruption due to a strike, natural disasters or otherwise, we
may not be successful in transporting such materials or finished products in a
timely and cost-effective manner.

Our business may be adversely affected by an inability to successfully manage
our production and inventory.

Most of our customers use inventory management systems which track sales of
particular products and rely on reorders being rapidly filled by suppliers to
meet consumer demand rather than on large inventories being maintained by these
customers. These systems increase pressure on us to fill orders promptly and
thereby shift a portion of the customer's inventory management cost to us. Our
production of excess inventory to meet anticipated retailer demand could result
in markdowns and increased inventory carrying costs for us. In addition, if we
underestimate the demand for our products, we may be unable to provide adequate
supplies of products to retailers in a timely fashion, and may consequently lose
sales.

Our business may be adversely affected by our limited proprietary rights or by
legal actions to enforce or defend our proprietary rights.

We hold trademarks that are of fundamental value and importance for our
business. Although these trademarks have been registered in Italy and certain
other countries in which our products are sold, we may not be able to prevent
misappropriation of our trademarks or protect our other intellectual property.

The laws of some foreign countries where we sell our products may not protect
our proprietary rights to the same extent as do laws in the United States. Our
inability to protect our proprietary rights could materially adversely affect
our operations, which may adversely affect our financial condition. Litigation
also may be necessary to enforce, protect or defend our intellectual property
rights. Litigation may not be successful, could result in substantial costs and
diversion of management time and resources and could materially adversely affect
our operations and our financial condition.

In the event a third party brings an infringement claim against us, such party
could secure a judgment awarding substantial damages, as well as injunctive or
other equitable relief. This relief could effectively block our ability to make,
use, sell, distribute or market our products. If we fail to obtain a necessary
license or other right to proprietary rights held by third parties, it could
preclude the sale, manufacture or distribution of our products and could
materially adversely affect our financial condition.

Our operations are subject to government regulations.

Many aspects of our operations are subject to government regulations in Italy
and the other countries within which we operate. Such regulations include those
relating to:

     o    the production, packaging, labeling and marketing of our products;

     o    price controls;

     o    currency conversion and repatriation;

     o    significant taxation of our earnings and earnings of our personnel;

                                       27
<PAGE>

     o    manufacturing, environmental, safety and other regulations relating to
          our operations and the industries in which we operate;

     o    restrictive labor policies; and

     o    our use of local employees and suppliers.

Our operations are also subject to the risk of changes in international,
national, foreign and local laws and policies that may impose restrictions on
us, including trade restrictions, that could have a material adverse effect on
our operations and financial condition. Other types of government regulation
that could, if enacted or implemented, materially and adversely affect our
business include:

     o    expropriation or nationalization decrees;

     o    confiscatory tax systems;

     o    primary or secondary boycotts or embargoes directed at specific
          countries or companies;

     o    import restrictions or other trade barriers;

     o    mandatory sourcing rules; and

     o    high labor rate and fuel price regulation.

We cannot determine to what extent our future operations and earnings may be
affected by new legislation, new regulations or changes in or new
interpretations of existing regulations.

RISKS RELATING TO FOREIGN OPERATIONS

Our business may be adversely affected by risks associated with foreign
operations.

Substantially all of our revenues are generated from operations in Italy and, to
a lesser extent, in 45 countries throughout the world. Conducting an
international business inherently involves a number of difficulties and risks,
such as:

     o    currency fluctuations;

     o    export restrictions;

     o    compliance with existing and changing regulatory requirements;

     o    tariffs and other trade barriers;

     o    difficulties in staffing and managing international operations;

     o    cultural issues;

     o    longer payment cycles;

     o    problems in collecting accounts receivable;

     o    political instability and economic downturns;

     o    seasonal reductions in business activity in Europe during the summer
          months; and

     o    potentially adverse tax consequences.

                                       28
<PAGE>

Any of these factors may materially adversely affect our business and financial
condition.

We are subject to a number of regulatory and contractual restrictions governing
our relations with our employees.

We are subject to a number of regulatory and contractual restrictions governing
our relations with our employees, including our management. Our employment
relations in Italy are governed by numerous regulatory and contractual
requirements, including national collective labor agreements and individual
employer labor agreements.

These arrangements address a number of specific issues affecting our working
conditions, including:

     o    hiring;

     o    work time;

     o    wages and benefits; and

     o    termination of employment.

We will be required to make extraordinary or significant payments in order to
comply with these requirements. The cost of complying with these requirements
may materially adversely affect our business and financial condition. In
addition, our arrangements with several of our agents who market our products
are governed by a national collective labor agreement. In the event we were to
terminate any of these relations, we would be required to pay an indemnity that
could, in the aggregate, materially adversely affect our business and financial
condition.

Our results of operations may be adversely affected by foreign currency
fluctuations.

On January 1, 1999, certain members of the European Union, including Italy,
introduced a single currency, the Euro. As of January 1, 2002, European Monetary
Union (EMU) countries are required to settle transactions in Euros. In
compliance with these regulations, we have recently converted to the Euro. The
conversion to the Euro has and will result in increased costs to us related to
updating operating systems, review of the effect of the Euro on our contracts
and updating catalogues and sales materials for our products. In addition,
adoption of the Euro will limit the ability of an individual EMU country to
manage fluctuations in the business cycles through monetary policy.

Historically, a substantial portion of our revenues has been denominated in the
Italian Lire, and are now required to be reported in Euros. Our results of
operations are subject to fluctuations in the value of the Euro against the US
Dollar and other currencies. Accordingly, fluctuations in exchange rates could
materially adversely affect our business and financial condition.

Investors may not be able to enforce judgments against us or our officers and
directors.

Although we are organized under the laws of the State of Delaware, we are
primarily a holding company that primarily holds stock in entities outside the
United States, and a substantial portion of our assets are located outside the
United States. In addition, six of our seven directors and all of our executive
officers are residents of foreign countries and all or a substantial portion of
the assets of such directors and officers is located outside of the United
States. As a result, it may not be possible for investors to:

     o    effect service of process upon most of our directors and officers; or

     o    enforce judgments of United States courts predicated upon the civil
          liability provisions of United States laws against our directors' and
          officers' assets.

The market price of our common stock may be adversely affected by the difficulty
for investors to enforce judgments of United States courts.

                                       29
<PAGE>

STOCK AND MARKET RISKS

Vertical Financial Holdings and affiliated entities control Spigadoro.

Vertical Financial Holdings and entities affiliated with Vertical Financial
Holdings, have the ability to vote or direct the vote of approximately 58% of
our outstanding common stock and will control the actions that require
stockholder approval, including:

     o    the election of our directors; and

     o    the outcome of mergers, sales of assets or other corporate
          transactions or matters submitted for stockholder approval.

Jacob Agam, our Chairman of the Board, is also the Chairman of the Board of
Gruppo Spigadoro, N.V. and Vertical Financial Holdings and some of its
affiliated entities. Entities affiliated with Vertical Financial Holdings
control Gruppo Spigadoro and therefore have the power to vote all of the shares
of our common stock owned by Gruppo Spigadoro. Gruppo Spigadoro or its assignee
also has the right to nominate up to a majority of the members for election to
our Board of Directors so long as Gruppo Spigadoro, its affiliates and Carlo
Petrini, one of our directors, continue to own, in the aggregate, a specified
number of our securities.

Our stock may be delisted from The American Stock Exchange if we do not meet the
continued listing criteria.

We will be subject to the continued listing requirements of The American Stock
Exchange and if we are unable to satisfy any of these requirements, our stock
may be delisted from The American Stock Exchange. If our stock is delisted from
The American Stock Exchange, the liquidity of our stock could be impaired, not
only in the number of securities which could be bought and sold, but also
through delays in the timing of transactions, reduction in coverage by security
analysts and the news media and lower prices for our common stock than might
otherwise be attained.

If our stock is delisted from The American Stock Exchange, trading, if any, in
our stock would thereafter be conducted:

     o    on the Nasdaq National Market or the Nasdaq SmallCap Market, assuming
          we meet the requirements for initial listing on the Nasdaq National
          Market or the Nasdaq SmallCap Market, some of which we do not
          currently meet, including the minimum bid price requirement;

     o    on "The OTC Bulletin Board"; or

     o    the over the counter market in the "pink sheets."

If our stock was delisted from The American Stock Exchange and could not be
quoted on the Nasdaq National Market or the Nasdaq SmallCap Market, it could
become subject to Rule 15g9 under the Exchange Act, which imposes additional
sales practice requirements on broker-dealers which sell such securities to
persons other than established customers and "accredited investors" (generally,
individuals with net worth in excess of $1,000,000 or annual incomes exceeding
$200,000, or $300,000 together with their spouses). For transactions covered by
this rule, a broker-dealer must make a special suitability determination for the
purchaser and have received the purchaser's written consent to the transaction
prior to sale. Consequently, such rule may adversely affect the ability of
broker-dealers to sell our common stock and may adversely affect the ability of
stockholders to sell any of the shares of common stock in the secondary market.

We do not intend to pay dividends to our stockholders.

We have not paid any cash dividends on our common stock and do not expect to do
so in the foreseeable future.

Future sales of our common stock in the public market could adversely affect our
stock price and our ability to raise new funds.

Sales of shares of stock by existing stockholders could have an adverse effect
on our stock price. As of March 28, 2002, we had approximately 67.6 million
shares of common stock outstanding, of which approximately 8.6 million shares
are


                                       30
<PAGE>

eligible for sale without restriction. The remaining shares are subject to the
resale provisions of Rule 144 and Rule 145 under the Securities Act of 1933. We
have previously registered for resale approximately 5.3 million shares of our
common stock (included in the 8.6 million above) and approximately 0.4 million
shares issuable upon exercise of certain outstanding options and warrants. As a
result, the market price of our common stock could decline as a result of sales
of substantial amounts of our common stock in the public market or the
perception that substantial sales could occur.

Additional shares of our common stock may be issued if options or warrants are
exercised or our convertible promissory notes are converted, causing dilution to
our stockholders.

At December 31, 2001, we had outstanding:

     o    warrants to purchase approximately 2.8 million shares of common stock;

     o    options to purchase approximately 3.6 million shares of our common
          stock; and

     o    convertible promissory notes that are potentially convertible into
          shares of our common stock at the conversion price equal to 85% of the
          market price of our common stock. We cannot predict the actual number
          of shares of our stock that may be issued upon conversion of the note,
          which depends on the conversion price in effect from time to time
          during the term of the promissory notes and the timing of any
          conversion.

The existence of these securities may adversely affect us or our stockholders
for many reasons, including:

     o    the market price of our stock may be adversely affected by the
          existence of convertible securities;

     o    if any of these securities are exercised, the value of the stock held
          by our stockholders will be diluted if the value of such stock
          immediately prior to the exercise of such securities exceeds the
          exercise price;

     o    these securities give the holders the opportunity, at reduced cost, to
          profit from a rise in the market price of our stock; and

     o    the terms upon which we could issue additional common stock or obtain
          additional financing may be adversely affected.

Holders of warrants and options are also likely to exercise them when, in all
likelihood, we could obtain additional capital on terms more favorable than
those provided by the warrants and options.

In addition, in connection with our acquisition of Etrusco in December 2001, we
issued to the former stockholder of Etrusco 3,372,094 shares of our common stock
that were valued by agreement among the parties at $1.50 per share. The shares
will be subject to a lock-up and cannot be sold until December 22, 2003, at
which time up to 50% of the shares can be sold. The remaining 50% of the shares
are subject to sale beginning on December 22, 2004. The lock-up will be released
as to a percentage of the shares, which percentage will be equal to the
percentage of any of our shares held by the Vertical Group that might be sold by
Vertical prior to the expiration of the lock-up. However, pursuant to the
acquisition agreement, we agreed that, in the event that our common stock is not
valued at $1.50 per share or more as of the closing of the stock market on the
last trading day prior to each of the two dates above, we would issue to the
seller additional shares of common stock to compensate them for the difference
between $1.50 per share and the then current market value of our common stock.
We also have the right at any time to repurchase the shares for $1.50 in cash or
to pay to the seller in cash the difference between $1.50 and the price at which
any shares are sold. The existence of the price protection provision could
require us to issue a substantial number of additional shares to the seller in
the event that the market price target is not achieved and we elect to issue
additional shares, thereby causing potentially substantial dilution to
stockholders. Moreover, the share price value and related market price target
set forth above was determined by negotiation between us and the seller, and
should not be construed to imply or predict any future increase in the market
price of our securities.

Anti-takeover provisions may adversely affect our stockholders.

We are subject to a Delaware statute regulating business combinations that could
discourage, hinder or preclude an unsolicited acquisition of us and could make
it less likely that stockholders receive a premium for their shares as a result


                                       31
<PAGE>

of any such attempt. In addition, our Board of Directors may issue, without
stockholder approval, shares of preferred stock. The preferred stock could have
voting, liquidation, dividend or other rights superior to those of the common
stock. Therefore, if we issue preferred stock, your rights as a common
stockholder may be adversely affected. These factors could depress our stock
price.

ITEM 2. PROPERTIES

Our principal offices and facilities, owned or leased, and their current uses
are described in the following table:

<TABLE>
<CAPTION>
PLANT                    FACILITY SIZE                                 CAPACITY      ANNUAL         OWNED
LOCATION                 (Sq. Ft.)            USE                      TON/DAY       RENT           OR LEASED
--------                 ---------            ---                      -------       ----           ---------
<S>                      <C>                  <C>                      <C>             <C>            <C>
Bastia Umbra              1,355,725           Italian headquarters                     --             Owned
(Perugia)
Bastia Umbra                                  Mill                       335           --             Owned
(Perugia)
Bastia Umbra                                  Pasta plant                130           --             Owned
(Perugia)
Foligno                                       Pasta plant                130           --             Owned
(Perugia)
Bastia Umbra                                  Animal feed plant          800           --             Owned
(Perugia)
Padua                    322,917              Animal feed plant          390           --             Owned
Naples                   416,563              Animal feed plant          225           --             Owned
Alessandria              348,643              Animal feed plant          150           --             Owned
Bari                     215,633              Animal feed plant          130           --             Owned
Cagliari                 55,570               Animal feed plant          120           --             Owned
Catania                  80,586               Warehouse                                --             Owned
Other Locations
Rome                                          Offices                               $107,500          Leased
Mondovi                  29,754               Offices                    --            --             Owned
Mondovi                  139,955              Pasta plant                310           --             Owned
Mondovi                  106,524              Warehouse                  --            --             Owned
Mondovi                  260.446              Land                       --            --             Owned
Morozzo                  75,320               Warehouse                  --         $123,000          Leased
</TABLE>


Our largest plant is located in Bastia Umbra, near Perugia. The municipality of
Bastia has initiated a rezoning proceeding with respect to the land upon which
our plant is located. The rezoning proceeding envisions the total demolition of
existing buildings and re-classifying the land as residential and public park
space. In the event that the rezoning is implemented, we will be required to
relocate our entire plant from its current location in Bastia Umbra. See "Risk
Factors."

We believe that these facilities are suitable for our current and anticipated
need. We believe that, if necessary, we can obtain additional leased space
and/or renew our existing leases at similar rates.

ITEM 3. LEGAL PROCEEDINGS

We are a party to certain legal proceedings incidental to the conduct of our
business, none of which individually or in the aggregate is material to our
financial condition and results of operations.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

Not Applicable.


                                       32
<PAGE>


                                     PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

Our common stock began trading on the Nasdaq National Market on March 26, 1997
and was quoted for trading under the symbol "IATA." Prior to that date, there
was no public market for our common stock. On January 18, 2000, our stock began
trading on the American Stock Exchange and is quoted for trading under the
symbol "SRO." The following table sets forth the range of high and low closing
sales prices per share for our common stock on the Nasdaq National Market for
the periods indicated prior to January 18, 2000 and on the American Stock
Exchange subsequent to that date.

FISCAL YEAR ENDED DECEMBER 31, 2001:                    HIGH         LOW

October 1, 2001 through December 31, 2001              $0.50         0.25
July 1, 2001 through September 30, 2000                 0.55         0.20
April 1, 2001 through June 30, 2001                     0.65         0.35
January 1, 2001 through March 31, 2001                  1.44         0.60

FISCAL YEAR ENDED DECEMBER 31, 2000:                    HIGH         LOW

October 1, 2000 through December 31, 2000              $1.81        $0.50
July 1, 2000 through September 30, 2000                 2.63         1.50
April 1, 2000 through June 30, 2000                     2.81         1.75
January 1, 2000 through March 31, 2000                  3.09         2.00

As of March 30, 2002, there were approximately 42 record holders and we believe
the number of beneficial owners of our common stock exceeds 550.

On April 12, the closing sale price of a share of our common stock was $0.14.

RECENT SALES OF UNREGISTERED SECURITIES

On December 21, 2001, we issued 3,372,094 shares of our common stock to the
stockholder of Pastificio Etrusco S.p.A., a company that we acquired on that
date. The shares were issued pursuant to the stock purchase agreement with such
stockholder.

The above transaction was a private transaction not involving a public offering
and was exempt from the registration provisions of the Securities Act of 1933
under Section 4(2) or Regulation D of the Securities Act. The sale of such
securities was without the use of an underwriter, and the certificate for the
shares contains a restrictive legend permitting the transfer of such securities
only upon registration of the shares or an exemption under the Securities Act.

DIVIDEND POLICY

We have never paid cash dividends on our common stock and do not anticipate or
intend paying cash dividends in the foreseeable future on our common stock.

ITEM 6. SELECTED FINANCIAL DATA

The selected financial data presented below summarizes certain financial data
that has been derived from and should be read together with the more detailed
consolidated financial statements of Spigadoro, Inc. and the notes thereto
included elsewhere in this Annual Report on Form 10-K.

<TABLE>
<CAPTION>
                            1997             1998             1999             2000             2001              2001
                            ----             ----             ----             ----             ----              ----

                                                                                                           (IN THOUSANDS OF
                                                                                                              U.S. DOLLARS,
STATEMENT OF INCOME                                                                                        EXCEPT PER SHARE
DATA:                                          (IN THOUSANDS OF EUROS, EXCEPT PER SHARE AMOUNTS)             AMOUNTS) (1)
<S>                       <C>              <C>               <C>             <C>              <C>                <C>
Net sales                 152,282          137,536          135,098          164,999          182,846           $161,968
Cost of sales             115,798          101,691           97,683          132,467          145,609            128,983
                          -------          -------           ------          -------          -------           --------

Gross profit               36,484           35,845           37,415           32,532           37,237             32,985

Selling Expenses           24,600           23,857           25,273           30,783           33,494             29,670

General and                 8,304            7,602            7,148           12,868           14,123             12,510
administrative
expenses

Impairment Charge (3)          --               --             --                 --            8,000              7,087
                          -------          -------           ------          -------          -------           --------
                           32,905           31,459           32,421           43,651           55,617             49,267

Operating income (loss)     3,580            4,386            4,994          (11,119)         (18,380)           (16,281)


(Loss) income
from continuing
operations                    144              428            1,185           (2,535)         (21,802)           (19,313)

Loss from
discontinued
operations                     --               --               --           (2,072)              49                 43

Net income (loss)             144              429            1,185           (4,607)         (21,753)          $(19,269)
                          =======          =======           ======          =======          =======           ========


Basic and diluted               5               14               40
earnings per share
(Euro, US $)

Weighted average
number of shares of
common stock                 54.1             57.7             58.1             58.7             61.3               61.3
outstanding (millions
of shares)

EBITDA(2)                   6,017            7,240            8,089           (3,728)           1,039                920
</TABLE>


(1)  Exchange Rate: Euro 1.129 = U.S. $1.00 as of December 31, 2001.

(2)  EBITDA is defined as earnings before interest, income taxes, depreciation
     and amortization. Although EBITDA is not recognized under U.S. GAAP, it is
     accepted in the food industry as a generally recognized measure of
     performance. However, EBITDA should not be considered an alternative to
     operating income, net income, cash flows or any other measure of
     performance as determined in accordance with generally accepted accounting
     principles, as an indicator of operating performance or as a measure of
     liquidity.

(3)  We have determined that as of December 31, 2001 that the carrying amount of
     goodwill related to our Gazzola acquisition was impaired and we would be
     unable to recover the recorded net book value. Accordingly, we have
     recognized an impairment loss under the new rules. See "Management's
     Discussion and Analysis of Financial Condition and Results of Operations -
     Financial Accounting Announcements."

<TABLE>
<CAPTION>
                                                YEARS ENDED DECEMBER 31,
                              1997             1998            1999            2000              2001             2001
                              ----             ----            ----            ----              ----             ----
BALANCE SHEET DATA:                                                                                            (IN THOUSANDS
                                                               (IN THOUSANDS OF EURO)                             OF U.S.
                                                                                                               DOLLARS) (1)
<S>                           <C>             <C>             <C>             <C>               <C>               <C>
Working capital (deficiency)  7,419           5,406            (1,754)         (38,986)         (28,595)          $(25,330)
Total assets                 96,952          96,174           112,207          168,001          169,007            149,709
Total liabilities            72,271          71,066            82,040          141,366          157,465            139,485
Stockholders' equity         24,680          25,109            30,165           26,635           11,542             10,224
</TABLE>

(1)  Exchange Rate: Euro 1.129 = U.S. $1.00 as of December 31, 2001.

                                       33
<PAGE>


ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
        OF OPERATIONS

The following discussion of our historical consolidated financial condition and
results of operations should be read in conjunction with the Consolidated
Financial Statements and the Notes to such consolidated financial statements
included elsewhere in this Form 10-K.

OVERVIEW

In December 2001, through our wholly-owned subsidiary, Petrini S.p.A., we
acquired all of the issued and outstanding shares of Pastificio Etrusco S.p.A.
The purchase price consisted of 3,372,094 shares of Spigadoro common stock at a
guaranteed value of $1.50 per share, or approximately $5 million in the
aggregate. The number of shares is subject to adjustment in the event the market
price of our stock is not at least $1.50 on the two-year anniversary of the
acquisition. See "Risk Factors - Stock and Market Risks." For purposes of
valuing the acquisition purchase price, the shares were valued at $1.50.

Our animal feed business produces feed for industrial breeders, family owned
breeding farms and domestic pets. Our pasta and flour business produces both
branded and private label traditional, specialty and diet pastas and flours for
the use of the bakery industry.

Our pasta and flour business and animal feed business represented approximately
41.3% and approximately 58.7%, respectively, of our revenues in 2001. Virtually
all of our sales of animal feed are in Italy, while approximately 70% of our
pasta and flour products are exported to Europe, Southeast Asia, the United
States and other parts of the world.

Since substantially all of our operations are currently in Italy, our functional
currency is the Euro. Therefore, our financial statements are presented in Euros
for financial statement reporting. All amounts stated in US Dollars have been
translated into US Dollars for the convenience of the reader at the rate of Euro
1.129 = US $1.00, which approximates the Noon Buying rate of the Federal Reserve
Bank of New York on December 31, 2001.

In the following discussions, most percentages and Euro and US Dollar amounts
have been rounded to aid presentation. As a result, all such figures are
approximations. In addition, certain items included in our results of operations
are described below both in terms of "Petrini and Gazzola (stand-alone)" results
and consolidated results. "Stand-alone" results refer to the consolidated
operations of our operating subsidiaries and eliminate the effect of Spigadoro
corporate overhead and other corporate expenses, thereby providing the reader
with additional information regarding our operations.

Our auditors have included an explanatory paragraph in their report that raises
doubt about our ability to continue as a going concern. See "Risk Factors-Risks
Affecting Our Operations" and "--Liquidity and Capital Resources."

RESULTS OF OPERATIONS

The following discussion of our historical consolidated financial condition and
results of operations should be read in conjunction with the Consolidated
Financial Statements and the Notes to such consolidated financial statements
included elsewhere in this Form 10-K.

YEAR ENDED DECEMBER 31, 2001 COMPARED TO YEAR ENDED DECEMBER 31, 2000

Net Sales. Net sales for Fiscal 2001 increased by 10.8% to Euro 182.8 million
($161.9 million) from Euro 165.0 million ($146.1 million) during Fiscal 2000.
The increase was due primarily to the inclusion of a full year of Gazzola sales
versus only 8 months contribution in Fiscal 2000, as well as increases in our
animal feed business. Year to year, Gazzola sales and volumes fell approximately
10% and 12%, respectively, as a result of our determination to cancel certain
low margin contracts. Net sales for pasta and flour for Fiscal 2001 increased by
18.3% to Euro 78.9 million ($69.9 million) from Euro 66.7 million ($59.1
million) for Fiscal 2000 primarily as a result of including a full year of
Gazzola. Spigadoro pasta and flour volumes declined by 2.9% due in part to a
reduction of exports to the U.S. in connection with the events of September 11,
2001. Net sales for animal feed for Fiscal 2001 increased by 5.7% to Euro 103.9
million ($92.0 million) from Euro 98.3 million ($87.1 million) for Fiscal 2000,
due to volume increases of approximately 3.6% and certain price increases.

Gross Profit. Gross profit for Fiscal 2001 increased by 14.5% to Euro 37.2
million ($32.9 million) from Euro 32.5 million ($28.8 million) for Fiscal 2000,
while the gross profit percentage increased to 20.4% in Fiscal 2001 from 19.7%
in Fiscal 2000. In our animal feed division, the increase in gross margin was
primarily due both to a 3.6% increase in


                                       34
<PAGE>

volumes sold and to a product mix favoring higher margin products. Although
animal feed raw material costs (especially soya) increased, we were able to
compensate by increasing our prices despite intense competition. As a result,
gross margins in animal feed increased from 25.1% in Fiscal 2000 to 26.7% in
Fiscal 2001. Gross margins in the pasta sector declined from 13.0% in Fiscal
2000 to 12.7% Fiscal 2001 primarily due to an approximately 40% increase in
semolina costs, which generally accounts for approximately 25% of the cost of
sales. Although we were able to implement certain compensating selling price
increases, these generally did not take effect until at least the third quarter
of the year and therefore had a limited impact on the full year results. For
example, Gazzola's average prices per kilogram increased 20% in Fiscal 2001
versus Fiscal 2000, although a semolina cost increase has limited the impact of
these price increases. Moreover, intense competition and a decision by the two
market leaders in Italy to maintain price levels in an effort to capture market
share made it difficult to increase prices. We anticipate that the acquisition
of Etrusco and our subsequent transfer of approximately 83% of our Bastia
production to the more efficient Etrusco plant in nearby Foligno will result in
significant production cost savings in Fiscal 2002.

Operating Expenses. Operating expenses, including selling expenses and general
and administrative expenses, relating to the Petrini and Gazzola operations
(stand-alone) in Fiscal 2001 increased by 30.1% to Euro 53.6 million ($47.5
million) from Euro 41.2 million ($36.5 million) in Fiscal 2000 primarily due to
a non-cash, non-recurring impairment charge of Euro 8 million ($7.1 million)
related to our Gazzola acquisition as it was determined that we would be unable
to recover the carrying amount of our goodwill, as well as the additional
expenses related to a full year of Gazzola operations. We continue to implement
an expense reduction program, which includes personnel reduction, elimination of
certain consulting expenses and the closure of our administrative office in
Milan, that is expected to result in approximately Euro 1.5 million ($1.3
million) savings in 2002, although the effect for 2001 was not significant
because the program was implemented only in the last quarter of the year. In
connection with these personnel reductions, we also incurred a one-time expense
of Euro 0.3 million ($0.3 million). Our ongoing efficiency plan and related
headcount reduction program resulted in an overall reduction of manpower from
514 persons at the start of Fiscal 2001 to 460 persons at the end of the year
(excluding Etrusco personnel acquired in December 2001), thereby creating
approximately Euro 2.5 million ($2.2 million) in ongoing, annualized personnel
cost savings. The positive impact of this cost reduction on the absolute level
of operating expenses was, however, offset by approximately 20% increases in the
cost of energy in Italy, which impacted production costs and lead to significant
increases in distribution expenses, and the timing of the headcount reductions,
with many of them occurring in the second half of the year. In addition, Fiscal
2001 includes certain non-recurring severance costs incurred by Petrini in
connection with the executive personnel reductions, and certain other one-time
charges, which in total represented approximately Euro 0.5 million ($0.4
million). Fiscal 2001 operating expenses also increased by approximately Euro
0.4 million ($0.4 million) due to the implementation of a new SAP management
information system.

Consolidated operating expenses for Fiscal 2001 increased by 26.6% to Euro 55.6
million ($49.3 million) from Euro 43.6 million ($38.6 million) for Fiscal 2000.
This increase was primarily due to a non-cash, non-recurring impairment charge
of Euro 8 million ($7.1 million) related to our Gazzola acquisition as it was
determined that we would be unable to recover the carrying amount of our
goodwill, as well as the additional expenses related to a full year of Gazzola
operations. As a percentage of sales, operating expenses for Fiscal 2001,
excluding the non-recurring impairment charge, were 26.0%, or slightly less than
the 26.5% of sales recorded in Fiscal 2000. The headcount reductions and other
efficiencies effected in Fiscal 2001 have reduced our cost base and, together
with certain price increases effected late in 2001, are expected to positively
impact gross profit and operating expenses during Fiscal 2002.

Income (Loss) from Operations. Loss from operations at Petrini and Gazzola
(stand-alone) amounted to Euro 15.4 million ($13.6 million) in Fiscal 2001
compared to a loss from operations of Euro 8.0 million ($7.1 million) in Fiscal
2000. The increased operating losses were due to the impairment charge noted
above.

Consolidated loss from operations for Fiscal 2001 amounted to Euro 18.4 million
($16.3 million) compared to a loss from operations of Euro 11.1 million ($9.8
million) for Fiscal 2000 due to the impairment charge and the other reasons
discussed above.

Interest Expense. Net interest expense for Fiscal 2001 increased by 52.5% to
Euro 6.1 million ($5.4 million) from Euro 4.0 million ($3.5 million) in Fiscal
2000. This increase was primarily a result of additional short-term debt
incurred to finance Gazzola's losses and cash shortages.

Other Income. Other income decreased to Euro 2.7 million ($2.4 million) in
Fiscal 2001 from other income of Euro 15.6 million ($13.8 million) in Fiscal
2000. The other income in Fiscal 2000 was primarily the result of an
extraordinary gain


                                       35
<PAGE>

on the sale of our investment in Algo Vision, while the Fiscal 2001 other income
of Euro 2.7 million ($2.4 million) was the result of a reversal of accrued and
unpaid expenses recorded in prior years.

Income (Loss) From Continuing Operations Before Income Taxes. Loss from
continuing operations before income taxes for Fiscal 2001 increased to Euro 21.8
million ($19.3 million) compared to Euro 2.5 million ($2.2 million) in Fiscal
2000. This increase was attributable to the Gazzola impairment charge and the
reduced other income in Fiscal 2001 resulting from the extraordinary Algo Vision
gain in Fiscal 2000. After adjusting for these two factors, loss from continuing
operations declined approximately 25% to Euro 13.8 million ($12.2 million) in
Fiscal 2001 from Euro 18.2 million ($16.1 million) in the prior year.

Net Income (Loss). Net loss for Fiscal 2001 was Euro 21.8 million ($19.3
million) compared to a net loss of Euro 4.6 million ($4.1 million) in Fiscal
2000. The increased net loss was attributable to the Gazzola impairment charge
and the reduced other income in Fiscal 2001 resulting from the extraordinary
Algo Vision gain in Fiscal 2000. After adjusting for these two factors, net loss
declined approximately 33% to Euro 13.8 million ($12.2 million) in Fiscal 2001
from Euro 20.3 million ($17.9 million) in Fiscal 2000, primarily as a result of
increased gross profit partially offset by increased operating expenses and
interest expenses.

EBITDA. EBITDA relating to the Petrini and Gazzola operations (stand-alone) in
Fiscal 2001 improved to positive Euro 2.7 million ($2.4 million) from negative
Euro 1.6 million ($1.4 million) in Fiscal 2000. This increase was primarily due
to the increase in absolute gross profit and gross profit margin and the other
income reversal of previous accruals, partially offset by increased operating
expenses and higher raw material costs. Excluding non-recurring charges related
to severance payments of an aggregate of Euro 1.3 million ($1.2 million), EBITDA
relating to the Petrini and Gazzola operations (stand-alone) during Fiscal 2001
would have been Euro 4.0 million ($3.5 million).

Consolidated EBITDA for Fiscal 2001, improved to positive Euro 1.0 million
($920,000) from negative Euro 3.7 million ($3.3 million) in Fiscal 2000 due to
the increase in absolute gross profit and gross profit margin and the other
income, partially offset by increased operating expenses and higher raw material
costs. Excluding non-recurring charges related to severance payments of an
aggregate of Euro 1.3 million ($1.2 million), consolidated EBITDA for Fiscal
2001 would have been Euro 2.3 million ($2.1 million).

EBITDA is defined as earnings before interest, income taxes, depreciation and
amortization. Although EBITDA is not recognized under U.S. GAAP, it is accepted
in the food industry as a generally recognized measure of performance. However,
EBITDA should not be considered an alternative to operating income, net income,
cash flows or any other measure of performance as determined in accordance with
generally accepted accounting principles, as an indicator of operating
performance or as a measure of liquidity.

YEAR ENDED DECEMBER 31, 2000 COMPARED TO YEAR ENDED DECEMBER 31, 1999

General. We acquired Gazzola on May 3, 2000 and therefore our results of
operations for the fiscal year ended December 31, 2000 include the Gazzola
operations since such date, while our results of operations for the fiscal year
ended December 31, 1999 include only the operations of Petrini. As a result, (i)
all revenue and expense accounts in the following discussion for Fiscal 2000
were increased by the revenues and expenses incurred by Gazzola since May 3,
2000 and (ii) the 1999 results include only a small amount of corporate overhead
of Spigadoro, Inc. As a result, year-to-year results are not necessarily
comparable.

Net Sales. Net sales for Fiscal 2000 increased by 22.1% to Euro 165.0 million
($146.2 million) from Euro 135.1 million ($119.7 million) during Fiscal 1999.
The increase was primarily due to the acquisition of Gazzola in May 2000, which
contributed Euro 31.8 million ($28.2 million) of additional sales to our pasta
sector during the year. Consequently, net sales for pasta and flour for Fiscal
2000 increased by 87.0% to Euro 66.7 million ($59.8 million) from Euro 35.6
million ($31.5 million) for Fiscal 1999. Net sales for animal feed for Fiscal
2000 decreased by 1.1% to Euro 98.3 million ($87.1 million) from Euro 99.5
million ($88.1 million) for Fiscal 1999 on relatively flat volume. The sales mix
in animal feed was influenced by a number of factors during the year, including
a dioxin plague which affected North Italian chicken farmers and the arrival of
Mad Cow Disease (BSE) in Italy, which resulted in significant reductions in
Italian consumption of beef and milk. Consequently, our sales volumes of feed
for milk cows and for chickens fell 3.5% and 7%, respectively, during Fiscal
2000. However, we were able to partially offset these reductions through
increased sales of feed for rabbits and sheep, as a result of various new
marketing initiatives and changing consumer preferences in light of


                                       36
<PAGE>

the well-publicized beef and chicken health issues. Although we believe that our
strategy of maintaining a presence in all major livestock branches and in all
regions of Italy may help to minimize the risks associated with these and other
serious diseases impacting the food chain, there can be no assurance that such
diseases will not have an adverse effect on our operations in the future. See
"Risk Factors."

Gross Profit. Gross profit for Fiscal 2000 decreased by 13.0% to Euro 32.5
million ($28.8million) from Euro 37.4 million ($33.1 million) for Fiscal 1999,
while the gross profit percentage fell to 19.7% in Fiscal 2000 from 27.7% in
Fiscal 1999. This decrease was primarily due to significant increases in the
prices of certain key raw materials during 2000. Specifically, the price of
soya, which accounts for over 14% of total raw material costs in animal feed,
rose nearly 40% during the year. In the pasta sector, where semolina is the main
ingredient and represents approximately 25% of the cost of sales, average
semolina costs increased approximately 12% during 2000. In animal feed, we were
able to secure certain compensating price increases, but did not fully regain
our previous margin levels until the end of Fiscal 2000. For example, while our
average price of animal feed is currently approximately 5% above average levels
of 1999, the average levels for Fiscal 2000 were only 1.5% above 1999 levels. In
pasta, strong competitive pressures in the private label sector have so far
prevented Gazzola from fully re-establishing its previous margin levels and
contributed to a reduction in Gazzola's gross profit percentage from 16.9% in
Fiscal 1999 to 3.1% in Fiscal 2000.

Operating Expenses. Operating expenses, including selling expenses and general
and administrative expenses, relating to the Petrini and Gazzola operations
(stand-alone) in Fiscal 2000 increased by 25.1% to Euro 41.5 million ($36.7
million) from Euro 33.2 million ($29.4 million) in Fiscal 1999, primarily as a
result of the acquisition of Gazzola in May 2000, which contributed Euro 6.9
million ($6.1 million) in additional operating expenses. Petrini's ongoing
efficiency plan and related headcount reduction program resulted in an overall
reduction of manpower from 404 persons at the start of Fiscal 2000 to 350
persons at the end of the year, thereby creating Euro 1.8 million ($1.6 million)
in ongoing, annualized personnel cost savings. The positive impact of this cost
reduction on the absolute level of operating expenses was, however, offset by
approximately 30% increases in the cost of energy in Italy, which impacted
production costs and lead to significant increases in distribution expenses, and
the timing of the headcount reductions, with many of them occurring in the
second half of the year. In addition, Fiscal 2000 includes certain non-recurring
severance costs incurred by Petrini in connection with the personnel reductions
and certain other one-time charges, which in total represented Euro 1.7 million
($1.5 million). Excluding these non-recurring charges, operating expenses
relating to the Petrini and Gazzola operations (stand-alone) in Fiscal 2000
would have been Euro 39.8 million ($35.3 million).

Consolidated operating expenses for Fiscal 2000 increased by 34.6% to Euro 43.6
million ($38.6 million) from Euro 32.4 million ($28.7 million) for Fiscal 1999.
This increase was due to the additional effect of Spigadoro corporate overhead
costs, including a full year of goodwill amortization, whereas only two months
of goodwill amortization were incurred in Fiscal 1999. The headcount reductions
and other efficiencies effected in 2000 have reduced our cost base and, together
with certain price increases effected late in 2000 and into 2001, are expected
to positively impact gross profit and operating expenses during Fiscal 2001. In
addition, we anticipate certain headcount reductions at our Gazzola operations
during 2001, which will further reduce our fixed costs. See "EBITDA" below.

Income (Loss) from Operations. Loss from operations at Petrini and Gazzola
(stand-alone) amounted to Euro 8.0 million ($7.1 million) in Fiscal 2000
compared to income from operations of Euro 4.4 million ($3.9 million) in Fiscal
1999. This decrease was primarily due to a reduction in gross profit in Fiscal
2000 resulting from the factors set forth above and an increase in operating
expenses, in particular due to the Gazzola acquisition and the disappointing
results of operations at Gazzola.

Consolidated loss from operations for Fiscal 2000 amounted to Euro 11.1 million
($9.8 million) compared to income from operations of Euro 5.0 million ($4.4
million) for Fiscal 1999 due to the reasons discussed above and the additional
effect of an increase in operating expenses as a result of Spigadoro corporate
overhead and the additional goodwill amortization expenses not incurred in
Fiscal 1999.

Interest Expense. Net interest expense for Fiscal 2000 increased by 166% to Euro
4.0 million ($3.5 million) for Fiscal 2000 from Euro 1.5 million ($1.3 million)
in Fiscal 1999. This increase was a result of additional debt incurred in
connection with our acquisition of Gazzola in May 2000, interest expense
relating to notes payable issued in the Petrini acquisition in December 1999 (a
majority of which was repaid in 2000) and additional costs incurred relating to
our increased factoring activity, together with an overall increase in
prevailing bank interest rates in Italy during Fiscal 2000.

                                       37
<PAGE>

Other Income. Other income increased to Euro 15.5 million ($13.7 million) in
Fiscal 2000 from other expense of Euro 25,306 ($22,417) in Fiscal 1999,
primarily as a result of the sale of all of our Algo Vision shares resulting in
a one-time net gain of Euro 14.8 million ($13.1 million) and of exchange rate
gains recognized upon the repayment of our Euro 6.2 million promissory note
issued in connection with our acquisition of Petrini in December 1999.

Income (Loss) From Continuing Operations Before Income Taxes. Income (loss) from
continuing operations before income taxes for Fiscal 2000 was Euro 388,000
($343,000) compared to Euro 3.5 million ($3.1 million) in Fiscal 1999. This
decrease was attributable to a loss from continuing operations before income
taxes at Petrini and Gazzola (stand-alone) in Fiscal 2000 of Euro 11.8 million
($10.5 million) compared to income from continuing operations of Euro 3.0
million ($2.7 million) in Fiscal 1999, offset primarily by the gain from the
sale of the Algo Vision shares.

Net Income (Loss). Net loss for Fiscal 2000 was Euro 4.6 million (4.1 million)
compared to net income of Euro 1.2 million ($1.1 million) in Fiscal 1999. The
loss was due to a reduction in gross profit, an increase in interest expense and
operating expenses, including goodwill amortization, and an increase in income
taxes, partially offset by the one-time gain from the sale of all of our Algo
Vision shares. Income taxes for Fiscal 2000 increased to Euro 2.9 million ($2.6
million) from Euro 2.3 million ($1.9 million) for Fiscal 1999. However, a
substantial portion of the tax amount in Fiscal 2000 is a non-cash charge
relating to the reversal of a deferred tax asset. We will not be required to pay
a substantial portion of the income taxes due on the sale of the Algo Vision
shares as a result of the past net operating losses from our discontinued
operations in Switzerland.

EBITDA. EBITDA relating to the Petrini and Gazzola operations (stand-alone) in
Fiscal 2000 decreased by 121% to negative Euro 1.6 million ($1.4 million) from
positive Euro 7.5 million ($6.8 million) in Fiscal 1999. This decrease was
primarily due to a reduction in gross profit in 2000 as a result of an increase
in raw material and energy costs, a sales mix favoring lower margin products, as
well as an increase in operating expenses relating to our Gazzola acquisition
and non-recurring severance payments in connection with headcount reductions
(pursuant to Petrini's efficiency plan). Excluding non-recurring charges related
to the severance payments and other extraordinary costs described above of an
aggregate of Euro 2.0 million ($1.8 million), EBITDA relating to the Petrini and
Gazzola operations (stand-alone) during Fiscal 2000 would have been Euro 0.4
million ($0.4 million).

Consolidated EBITDA for Fiscal 2000, which does not include the Euro 14.8
million ($13.1 million) gain received from the sale of our Algo Vision shares,
decreased by 146% to negative Euro 3.7 million ($3.4 million) from positive 8.1
million ($7.2 million) in Fiscal 1999 due to the factors discussed above and to
the additional effect of corporate overhead expenses not incurred in Fiscal
1999. The non-recurring severance payments discussed above, which aggregate Euro
1.3 million ($1.1 million), relate to net headcount reductions of 54 positions,
which we anticipate will create Euro 1.8 million ($1.6 million) in ongoing,
annualized personnel cost savings and which will positively impact gross profit
and operating expenses, as well as EBITDA, beginning in 2001. We anticipate that
further reductions of personnel at our Gazzola operations will continue in 2001,
which will further decrease our ongoing cost base but will create additional
one-time severance charges.

EBITDA is defined as earnings before interest, income taxes, depreciation and
amortization. Although EBITDA is not recognized under U.S. GAAP, it is accepted
in the food industry as a generally recognized measure of performance. However,
EBITDA should not be considered an alternative to operating income, net income,
cash flows or any other measure of performance as determined in accordance with
generally accepted accounting principles, as an indicator of operating
performance or as a measure of liquidity.

LIQUIDITY AND CAPITAL RESOURCES

Management has been implementing a restructuring plan devised to continue
reducing fixed costs, while improving gross margins and cash flows in order to
sustain operations. Our results of operations for Fiscal 2001, while
disappointing, have begun to reflect the positive impact of this restructuring
plan. We continue to require additional working capital to support our
operations. As noted elsewhere in this Form 10-K, we are currently negotiating
with certain Italian banks to restore access to lines of credit previously
available to us in Fiscal 2001, and we have received indications that the banks
are willing to restore these lines of credit. See "Risk Factors - Risks
Affecting Our Operations." The restoration of such credit lines is critical to
our ongoing operations and liquidity. In addition, we are exploring the
possibility of selling certain assets, including certain non-essential real
estate assets the value of which we believe exceeds its current book value. We
may also require additional funds for acquisitions and the integration and
management of acquired businesses. We will likely require additional funds to
repay portions of our outstanding working capital facility beginning in April
2003, as required by our recent agreement with the banks. We have no present
commitments or arrangements to obtain any additional funds and we cannot predict
whether additional funds will be available on terms favorable to us or at all.
If we cannot obtain funds when required, our business may be adversely affected.
Moreover, if we are unable to reach an agreement with the banks regarding the
restoration of our access to additional lines of credit, or to otherwise raise
additional funds through equity or debt financing or asset sales, our business,
financial condition and results of operations, as well as our ability to
continue our operations as currently conducted, would be materially adversely
affected. Our auditors have included an explanatory paragraph in their report
that raises doubt about our ability to continue as a going concern. However,
assuming that our lines of credit are restored, as to which there can be no
assurance, we believe that our funds, including cash expected to be generated
from operations, together with amounts available under our credit facilities and
factoring arrangements or made available through asset sales, should be
sufficient to finance our working capital requirements and our capital and debt
service requirements for the 12 month period following December 31, 2001.

At December 31, 2001, our cash and cash equivalents decreased to Euro 4.1
million ($3.6 million) from Euro 13.7 ($12.1 million) at December 31, 2000.
Working capital at December 31, 2001 was negative Euro 28.6 million ($25.3
million) compared to negative working capital of Euro 39.0 million ($34.5
million) at December 31, 2000.

Net cash used in operating activities was Euro 17.3 million ($15.3 million)
during Fiscal 2001 compared to net cash provided by operating activities of Euro
6.8 million ($6.0 million) during Fiscal 2000. This increase in cash used was
primarily due to the net loss incurred in Fiscal 2001 and an increase in
accounts receivable resulting from a reduction in factoring activities toward
the end of the year. At December 31, 2001, the aggregate amount of factoring
outstanding was Euro 13.9 million ($12.3 million), compared to Euro 24.5 million
($21.7 million) at December 31, 2000, which


                                       38
<PAGE>

contributed to an increase in accounts receivable from Euro 27.6 million ($24.5
million) December 31, 2000 to Euro 40.8 million ($36.2 million) at December 31,
2001.

Net cash used in investing activities in Fiscal 2001 amounted to Euro 3.9
million ($3.5 million), as compared to net cash used in investing activities of
Euro 1.8 million ($1.6 million) in Fiscal 2000. The principal uses were the
purchase of equipment for approximately Euro 4.4 million ($3.9 million),
partially offset by the sale of certain equipment.

Net cash provided by financing activities was Euro 13.4 million ($11.9 million)
during Fiscal 2001 compared to net cash used in financing activities of Euro 0.7
million ($0.6 million) in Fiscal 2000. The principal increases in cash resulted
from proceeds of long- and short-term borrowings, partially offset by repayments
of certain long-term debt.

At December 31, 2001 our total indebtedness increased to Euro 94.5 million
($83.7 million) compared to Euro 79.0 million ($70.0 million) at December 31,
2000, primarily due to a reduced usage of our accounts receivable factoring
lines, the proceeds of which have historically been partially utilized to reduce
short-term debt, and the assumption of approximately Euro 2.8 million ($2.5
million) of equipment financing of Etrusco.

At December 31, 2001 we had short-term debt in the aggregate amount of Euro 34.6
million ($30.6 million) comprised of borrowings under short-term lines of credit
and indebtedness assumed in the acquisition of Petrini. Based upon our recent
agreement to extend the maturity of our Euro 23.2 million ($20.6 million)
syndicated credit facility, such debt has been reclassified as long-term debt.
We maintain unsecured short-term credit facilities with approximately 25 Italian
banks. These facilities are typically available for terms up to one year and
accrue interest at fluctuating rates. Borrowings under these facilities are used
to support our Italian operations and are serviced by cash flow from operations.

At December 31, 2001 we had long-term debt (including current portion) in the
aggregate amount of Euro 59.9 million ($53.1 million), including our Euro 23.2
million ($20.6 million) working capital facility that matures in 2003. The debt
matures over varying terms through 2011 and accrues interest either at fixed
annual interest rates ranging from 1.9% to 11.35% or variable rates based upon
various interest rate measures. Substantially all of the long-term debt other
than the working capital facility is secured by liens on the property of our
operating subsidiaries. A portion of the long-term debt is subsidized by
government agencies. We believe that our current allocation between long-term
debt and short-term debt is not optimized, and we intend to explore a potential
refinancing of a portion of our indebtedness in an effort to allocate a greater
portion of out total debt to long-term debt.

In addition, our Euro 23.2 million ($20.6 million) working capital facility
secured in April 2000 matured in October 2001. During April 2002, we have
reached an agreement with the various banks that will provide for an extension
of the prior facility for a period of 24 months from October 2001; provided,
that we will be required to repay approximately 10% of the principal amount in
April 2003, 50% of the outstanding principal amount in June 2003, and the
remainder in October 2003. Outstanding amounts will bear interest at a rate
equal to EURIBOR plus 125 basis points. Any material adverse change in our
financial condition or stockholders' equity will entitle the banks to accelerate
the debt.

In addition, pursuant to the new extension agreement, we will be required to pay
portions of the outstanding balance beginning in April 2003, and we anticipate
that we will be required to finance all or a portion of such prepayment
obligations prior to the new maturity dates. We currently have no firm
agreements or arrangements to obtain any such financing, and our inability to
secure such financing would have a material adverse effect on our operations and
financial condition.

At December 31, 2001, we also had outstanding promissory notes in the amounts of
$5.3 million, $3.0 million and $3.6 million outstanding to Gruppo Spigadoro
N.V., Bebington Holdings N.V. (an affiliate of Gruppo Spigadoro N.V.) and Carlo
Petrini, respectively, each of which is a principal stockholder. The Gruppo
Spigadoro note is outstanding debt that remains from the acquisition of Petrini
in December 1999 and was amended and restated in October 2001 to convert the
outstanding balance of the previous demand note into a term loan expiring in
December 2002 (or sooner in the event of certain equity or asset sales). The
Bebington note and the Carlo Petrini note were issued in October 2001 in
exchange for new capital provided by such stockholders at the request of the
Italian bank consortium and in connection with the negotiations regarding an
extension of the working capital facility discussed above. The proceeds from
these notes were used by us to contribute additional equity into our Petrini
subsidiary. The loans bear interest at 6% annually and are repayable on December
31, 2002 or sooner in the event of certain equity or asset sales. In the event
the principal amount is not repaid on the maturity date, the entire Bebington
loan and approximately $1.4 million of the Carlo Petrini loan are


                                       39
<PAGE>

automatically convertible into shares of our common stock at a conversion rate
equal to 85% of the average closing sale price of our common stock for the ten
trading days prior to the maturity date. The remaining portion of the Carlo
Petrini loan would be repaid through the assignment by us of a portion of a loan
receivable from our subsidiary Petrini S.p.A., after which assignment Mr.
Petrini would look only to Petrini S.p.A. for repayment of that portion of the
loan. In consideration for the extension of all of these loans, we issued to
Carlo Petrini and Gruppo Spigadoro N.V. 600,000 and 2,400,000 shares of our
common stock, respectively.

We continue to utilize factoring arrangements whereby we sell a portion of our
accounts receivable without recourse. A portion of the proceeds of these
arrangements have been used to pay short-term indebtedness while the remaining
proceeds have been used for working capital. At December 31, 2001 the aggregate
amount of factoring outstanding was Euro 13.9 million ($12.4 million). We
believe our factoring program improves our cash and short-term debt positions,
and the failure to maintain any such factoring arrangements could adversely
impact our liquidity. See "Note 4 of the Notes to the Consolidated Financial
Statements of Spigadoro."

In addition, in connection with our acquisition of Etrusco in December 2001, we
issued to the former stockholder of Etrusco 3,372,094 shares of our common stock
that were valued by agreement among the parties at $1.50 per share. The shares
will be subject to a lock-up and cannot be sold until December 22, 2003, at
which time 50% of the shares can be sold. The remaining 50% of the shares are
subject to sale beginning on December 22, 2004. The lock-up will be released as
to a percentage of the shares, which percentage will be equal to the percentage
of any of our shares held by the Vertical Group that might be sold by Vertical
prior to the expiration of the lock-up. However, pursuant to the acquisition
agreement, we agreed that, in the event that our common stock is not valued at
$1.50 per share or more as of the closing of the stock market on the last
trading day prior to each of the two dates above, we would issue to the seller
additional shares of common stock to compensate them for the difference between
$1.50 per share and the then current market value of our common stock. We also
have the right at any time to repurchase the shares for $1.50 in cash or to pay
to the seller in cash the difference between $1.50 and the price at which any
shares are sold. The existence of the price protection provision could require
us to pay in cash the difference between approximately $5 million and the then
current market value of the shares or issue a substantial number of additional
shares to the seller in the event that the market price target is not achieved
and we elect not to pay cash, thereby causing potentially substantial dilution
to stockholders. The share price value and related market price target set forth
above was determined by negotiation between us and the seller, and should not be
construed to imply or predict any future increase in the market price of our
securities.


FINANCIAL ACCOUNTING ANNOUNCEMENTS

In June 2001, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 141, "Business Combinations." Statement 141
addresses financial accounting and reporting for business combinations


                                       40
<PAGE>

initiated after June 30, 2001 and supersedes Accounting Principles Board Opinion
No. 16, "Business Combinations." The most significant accounting differences
from Opinion 16 are that Statement 141 requires that all business combinations
be accounted for under the purchase method, thereby eliminating the
pooling-of-interests method, and establishes new criteria for identifying
acquired intangibles separately from goodwill with the expectation that more
intangibles will now be identified. Statement 141 also expands the disclosure
requirements of Opinion 16. The provisions of Statement 141 apply prospectively
to business combinations initiated after June 30, 2001. Because we historically
have not been able to meet the criteria for pooling-of-interests accounting, the
elimination of that method is expected to have no effect on us.

In June 2001, the Financial Accounting Standards Board also issued Statement of
Financial Accounting Standards No. 142, "Goodwill and Other Intangible Assets."
Statement 142 addresses financial accounting and reporting for acquired goodwill
and other intangible assets and supersedes Accounting Principles Board Opinion
No. 17, "Intangible Assets." Statement 142 adopts an aggregate approach to
goodwill, compared with the transaction-based approach of Opinion 17, by
accounting for goodwill on combined reporting units that include an acquired
entity. The more significant accounting provisions of Statement 142 are that (1)
goodwill and other identified intangible assets that have indefinite useful
lives will no longer be amortized, (2) goodwill and any other intangible asset
with an indefinite useful life will be tested for impairment at least annually
and (3) intangibles with finite useful lives will continue to be amortized.
Statement 142 also expands the required disclosures for goodwill and other
intangible assets. The provisions of Statement 142 are effective starting with
the first quarter of 2002. The carrying amount of our goodwill at December 30,
2001 was Euro 12.3 million ($10.9 million). Amortization of goodwill for 2001
was Euro 1.1 million $1.0 million. Under the provisions of Statement 142, we
will no longer amortize goodwill commencing with the first quarter of 2002. We
will instead review the carrying amount of goodwill at least annually for any
impairment and recognize an impairment loss if the carrying amount of goodwill
is not recoverable and its carrying amount exceeds its implied fair value. Our
intangible assets other than goodwill, principally trademarks, with a carrying
amount of Euro 2.3 million ($2.0 million) as of December 30, 2001, have finite
useful lives and will not be affected by Statement 142.

In October 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment of
Disposal of Long-Lived Assets." This statement will be effective for fiscal
years beginning after December 15, 2001. This statement established a single
accounting model, based upon the framework established in SFAS No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed of," for long-lived assets to be disposed of by sale or to address
significant implementation issues. The Company is in the process of assessing
the impact of the adoption of this statement on its consolidated financial
position, results of operations and cash flows.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We are exposed to market risk stemming from interest rates and commodity prices.
Changes in these factors could cause fluctuations in our net income and cash
flows.

We are exposed to interest rate changes with respect to several of our credit
facilities and debt instruments that bear interest based upon certain floating
interest rate benchmarks, such as EURIBOR (the European InterBank Offered Rate),
plus an additional percentage based on our current borrowing level. At December
31, 2001, approximately $68.7 million of our outstanding debt was subject to
floating interest rates. Changes in the EURIBOR interest rate or other relevant
benchmarks will have a positive or negative effect on our interest expense. Each
1.0% fluctuation in the relevant interest rate benchmark will increase or
decrease annual interest expense for us by approximately $687,000 based upon
outstanding borrowings at December 31, 2001.

Some raw materials used in our products are exposed to commodity price changes.
We manage some of this risk by using long-term agreements with some vendors.
With the exception of these contracts, we are subject to fluctuations in the
market price of our raw materials. The primary commodity price exposure is with
durum wheat, the principal raw material used to make pasta.

                                       41
<PAGE>

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The response to this item is included in a separate section of this report. See
the Consolidated Financial Statements attached hereto beginning on page F-1.

<TABLE>
<CAPTION>
                                       First           Second             Third           Fourth
                                      Quarter          Quarter           Quarter          Quarter
                                   ------------     ------------      ------------     ------------
<S>                                <C>              <C>               <C>              <C>
2001     (Dollars)
-------------------------
Net sales                          $     39,628     $     40,929      $     38,785     $     42,626
Gross Profit                              8,166            8,213             7,454            9,152
Net Income (Loss)                        (3,164)          (4,670)           (4,275)          (7,160)
Income per common and common
 share equivalent                         (0.05)           (0.08)            (0.07)           (0.11)

2001     (Euro)
-------------------------
Net sales                                44,736           46,205            43,785           48,120
Gross Profit                              9,218            9,272             8,415           10,332
Net Income (Loss)                        (3,572)          (5,272)           (4,826)          (8,083)
Income per common and common
 share equivalent                         (0.06)           (0.09)            (0.08)           (0.12)

2000     (Euro)
-------------------------
Net sales                                32,749           41,567            44,549           46,134
Gross Profit                              8,518            7,954             8,718            7,342
Net Income (Loss)                        10,609           (2,302)           (7,164)          (5,750)
Income per common and common
 share equivalent                          0.18            (0.01)            (0.06)           (0.19)
</TABLE>



ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
        FINANCIAL DISCLOSURE

Not applicable.

                                    PART III

The information called for by Item 10: Directors and Executive Officers of the
Registrant; Item 11: Executive Compensation; Item 12: Security Ownership of
Certain Beneficial Owners and Management; and Item 13: Certain Relationships and
Related Transactions will be included in and is incorporated by reference from
our definitive proxy statement to be filed pursuant to Regulation 14A within 120
days after the close of our fiscal year.

                                     PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

(a) 1.   Financial Statements

An index to Consolidated Financial Statements appears on page F-1.

      2.   Schedules

All financial statement schedules are omitted because they are not applicable,
not required under the instructions or all the information required is set forth
in the financial statements or notes thereto.

(b) Reports on Form 8-K

None.

(c) Exhibits

                                       42
<PAGE>

Exhibit
Number      Description
------      -----------

2.1     --  Stock Purchase Agreement, dated as of November 3, 1999, by
            and between the Registrant and Gruppo Spigador, N.V.(14)
3.1(a)  --  Amended and Restated Certificate of Incorporation (10)
3.1(b)  --  Certificate of Amendment of Amended and Restated Certificate
            of Incorporation of the Registrant (17)
3.2     --  Amended and Restated By-laws of the Registrant (11)
4.1     --  Form of Warrant Agreement (1)
4.2     --  Form of Underwriter's Warrant (1)
4.3     --  Warrant issued to Stockholders (one in a series of warrants
            with identical terms) (11)
4.4     --  Warrant issued to Stockholders (one in a series of warrants
            with identical terms) (1)
4.5     --  Escrow Agreement, dated March 26, 1997, among the Registrant,
            American Stock transfer & Trust Company and certain
            stockholders of the Registrant (1)
10.1    --  Spinoff Agreement, dated as of March 5, 1998, by and among
            HIBEG, IAT GmbH, and Communications Systems (5)
10.2    --  Agreement concerning the Assignment and Transfer of Corporate
            Shares, dated as of March 5, 1998, by and among HIBEG, IAT
            GmbH, and Communications Systems (5)
10.3    --  Loan Transfer Agreement, dated as of March 5, 1998, by and
            among HIBEG, IAT GmbH, and Communications Systems (5)
10.4    --  Option Agreement, dated as of March 5, 1998, by and among Dr.
            Viktor Vogt and HIBEG (5)
10.5    --  Spinoff Agreement, dated as of March 11, 1998, by and among
            the Registrant, Dr. Viktor Vogt, and Swiss Newco (5)
10.6    --  Transfer Agreement, dated as of March 11, 1998, by and among
            the Registrant, IAT AG, Dr. Viktor Vogt, and IAT
            Communications AG (5)
10.7    --  Agreement on the Acquisition of Assets, dated as of March 18,
            1998, between IAT AG and Swiss Newco (5)
10.8    --  Restructuring Agreement, dated as of March 5, 1998, by and
            among IAT GmbH. IAT AG, Dr. Vogt and HIBEG (5)
10.9    --  Amendment to the Transfer Agreement, dated as of March 24,
            1998, by and among the Registrant, IAT AG, Dr. Viktor Vogt
            and IAT Communication AG (6)
10.10   --  Promissory Note, dated March 24, 1998, by IAT Communication
            AG to the Registrant (6)
10.11   --  Promissory Note, dated March 24, 1998, by IAT Communication
            AG to Dr. Viktor Vogt (6)
10.12   --  Promissory Note, dated March 24, 1998, by IAT Communication
            AG to IAT AG (6)
10.13   --  Loan Agreement for current Account Credit Lines between IAT
            Deutschland GmbH and Volksbank Sottrum AG (1)
10.14   --  Agreement, dated September 1, 1992, by and between Grissemann
            Consulting SA and IAT AG (1)
10.15   --  Addendum to the Agreement of September 1, 1992, dated
            December 14, 1994, by and between Grissemann consulting SA
            and IAT AG (1)
10.16   --  Employment Contract, dated as of July 1, 1993, by and between
            IAT, IAG and Mr. Franz Muller (1)
10.17   --  Amendment No. 1 to Stock Purchase Agreement, dated as of
            October 4, 1996, by and among IAT Multimedia, Inc. (formerly
            known as IAT Holdings, Inc.), IAT AG, IAT Deutschland GmbH
            Vertical Financial Holdings, and the stockholders of IAT AG (1)


                                       43
<PAGE>

Exhibit
Number      Description
------      -----------

10.18   --  Amendment No. 1 to Marketing Agreement, dated as of October
            24, 1996, by and between IAT Multimedia, Inc. (formerly known
            as IAT Holdings, Inc.) and General Capital (1)
10.19   --  Registration Rights Agreement, dated February 27, 1997,
            between the Registrant, Vertical Financial Holdings and
            Viktor Vogt (1)
10.20   --  Registration Rights Agreement, dated February 27, 1997,
            between the Registrant, Vertical Financial Holdings, and
            Klauss-Dirk Sippel (1)
10.21   --  Registration Rights Agreement, dated February 27, 1997,
            between the Registrant, Vertical Financial Holdings, and
            Walter Glas GmbH (1)
10.22   --  Purchase Agreement, dated November 13, 1997, by and between
            the Registrant and Dr. Alfred Simmet (3)
10.23   --  Irrevocable Letter of Credit and Indemnity, dated November 7,
            1997, by and between the Registrant and Citibank, N.A. (3)
10.24   --  Credit Agreement, dated as of February 5, 1996, by and
            between IAT AG and Swiss Bank Corporation (4)
10.25   --  Agreement by and between Swiss Bank Corporation and the
            Registrant (4)
10.26   --  Agreement, dated as of December 22, 1997, by and among
            Richard Suter, Klaus-Dirk Sippel and Cornelius Holthuizen,
            IAT AG and the Registrant (4)
10.27   --  Amended and Restated Agreement, dated as of December 22,
            1997, by and among Richard Suter, Klaus-Dirk Sippel and
            Cornelius Holthuizen, IAT AG and the Registrant (4)
10.28   --  Securities Purchase Agreement, dated as of June 19, 1998, by
            and among the Registrant, JNC Opportunity Fund Ltd. and JNC
            Strategic Fund, Ltd. (8)
10.29   --  Registration Rights Agreement, dated as of June 19, 1998, by
            and among the Registrant, JNC Opportunity Fund Ltd. and JNC
            Strategic Fund, Ltd. (8)
10.30   --  5% Convertible Debenture due 2008, dated as of June 19, 1998,
            issued by the Registrant (8)
10.31   --  Form of Warrant, attached as exhibit to Securities Purchase
            Agreement (8)
10.32   --  Agreement, dated October 27, 1998, between the Registrant and
            Axel Hundt, the sole stockholder of Columbus Handles-und
            Vertrieb GmbH & Co. KG and Columbus Handels-und Vertrieb GmbH (9)
10.33   --  Exchange Agreement, dated as of December 31, 1998, by and
            among the Registrant, JNC Opportunity Fund Ltd. and JNC
            Strategic Fund Ltd. (10)
10.34   --  Executive Employment Agreement, dated as of September 1,
            1998, between IAT AG and Jacob Agam (11)
10.35   --  Employment Agreement, dated as of February 18, 1999, between
            IAT AG and Nicolaas Hildebrand (11)
10.36   --  Sublease Agreement, dated as of January 29, 1999, between the
            Registrant and Petrini, N.V. for offices located at 70 East
            55th Street, New York, New York 10022 (11)
10.37   --  Purchase Agreement, dated February 12, 1999, between the
            Registrant and Dr. Alfred Simmet (11)
10.38   --  Amendment, dated July 1, 1998, to Agreement, dated September
            1, 1992, between Grissemann Consulting SA and IAT AG
            (incorporated by reference to the Registrant's Annual Report
            on Form 10-K/A as filed on April 30, 1999)


                                       44
<PAGE>

Exhibit
Number      Description
------      -----------

10.39   --  Agreement for the Acquisition of Intellectual Property
            Rights, dated July 22, 1999, among the Registrant, IAT AG,
            Alco Vision Schweiz AG and Algo Vision pic (12)
10.40   --  Intellectual Property Assignment, dated July 22, 1999, among
            the Registrant, IAT AG and Algo Vision pic (12)
10.41   --  Intellectual Property Assignment, dated August 10, 1999,
            among the Registrant, IAT AG and Algo Vision pic (13)
10.42   --  Share Exchange and Subscription Agreement, dated July 22,
            1999, between Algo Vision pic and IAT AG (12)
10.43   --  Second Subscription Agreement, dated July 22, 1999, between
            Algo Vision pic and IAT AG (12)
10.44   --  Lock-in Agreement, dated July 22, 1999, among Algo Vision
            pic, Beeson Gregory Limited and IAT AG (12)
10.45   --  1999 Stock Option Plan
10.46   --  Employment Agreement, dated November 30, 1999, between
            Petrini S.p.A. and Lucio De Lucio (15)
10.47   --  Factoring Agreement, dated June 28, 1999, between Petrini
            S.p.A. and Comit Factoring S.p.A. (15)
10.48   --  Waiver Agreement and First amendment to IAT Multimedia, Inc.
            Series A 5% Convertible Debenture, dated November 23, 1999,
            by and between the Registrant and JNC Opportunity Fund Ltd. (16)
10.49   --  Employment Agreement dated January 1, 2000 by and between the
            Company and Lucio De Luca. (17)
10.50   --  Amended and Restated Employment Agreement dated January 1,
            2000 by and between the Company and Jacob Agam. (17)
10.51   --  Promissory Note issued to Gruppo Spigadoro, N.V. in the
            principal amount of $6,337,000. (17)
10.52   --  Promissory Note issued to Carlo Petrini in the principal
            amount of $1,000,000. (17)
10.53   --  Promissory Note issued to Carlo Petrini in the principal
            amount of ITL 12,050,000,000. (17)
10.54   --  Promissory Note issued to Carlo Petrini in the principal
            amount of $6,150,000. (17)
10.55   --  Stock Purchase Agreement dated as of January 19, 2000 by and
            between the Company and the other parties named therein. (18)
10.56   --  Shares Purchase Agreement dated as of April 14, 2000 by and
            between Petrini S.p.A. and the other parties named therein.  (19)
10.57   --  Promissory Note issued to Carlo Petrini in the principal
            amount of $3,587,000
10.58   --  Promissory Note issued to Bebington Holdings N.V. in the principal
            amount of $3,000,000
10.59   --  Amended and Restated Promissory Note issued to Gruppo Spigadoro N.V.
            in the principal amount of $5,305,000
21.1    --  List of Subsidiaries of Registrant
23.1        Consent of Deloitte & Touche S.p.A.

(1)  Incorporated by reference to the Registrant's Registration Statement on
     Form S-1 (Reg. No. 333-18529) as filed on December 23, 1996, as amended

(2)  Incorporated by reference to the Registrant's Quarterly Report on Form 10-Q
     as filed on November 14, 1997

(3)  Incorporated by reference to the Registrant's Registration Statement on
     Form 8-K as filed on November 26, 1997

(4)  Incorporated by reference to the Registrant's Registration Statement on
     Form S-1 (Reg. No. 333-41835) as filed on December 10, 1997, as amended

                                       45
<PAGE>

(5)  Incorporated by reference to the Registrant's Current Report on Form 8-K as
     filed on March 20, 1998

(6)  Incorporated by reference to the Registrant's Current Report on Form 8-K/A
     as filed on April 30, 1998

(7)  Incorporated by reference to the Registrant's Annual Report on Form 10-K as
     filed on April 15, 1998

(8)  Incorporated by reference to the Registrant's Quarterly Report on Form 10-Q
     as filed on November 15, 1998

(9)  Incorporated by reference to the Registrant's Current Report on Form 8-K as
     filed on January 11, 1999

(10) Incorporated by reference to the Registrant's Current Report on Form 8-K as
     filed on January 11, 1999

(11) Incorporated by reference to the Registrant's Annual Report on Form 10-K as
     filed on March 31, 1999

(12) Incorporated by reference to the Registrant's Current Report on Form 8-K as
     filed on August 4, 1999

(13) Incorporated by reference to the Registrant's Current Report on Form 8-K/A
     as filed on August 24, 1999

(14) Incorporated by reference to the Registrant's Quarterly Report on Form 10-Q
     for the quarter ended September 30, 1999

(15) Incorporated by reference to the Registrant's Registration Statement on
     Form S-4 filed on December 9, 1999

(16) Incorporated by reference to the Registrant's Current Report on Form 8-K as
     filed on December 10, 1999

(17) Incorporated by reference to the Registrant's Current Report on Form 8-K as
     filed on January 12, 2000

(18) Incorporated by reference to the Registrant's Current Report on Form 8-K as
     filed on February 2, 2000.

(19) Incorporated by reference to the Registrant's Current Report on Form 8-K as
     filed on May 10, 2000.



                                       46
<PAGE>



                        SPIGADORO, INC. AND SUBSIDIARIES

                       CONSOLIDATED FINANCIAL STATEMENTS
                                      AND
                         INDEPENDENT AUDITORS' REPORTS

                               DECEMBER 31, 2001




<PAGE>




                   INDEX TO CONSOLIDATED FINANCIAL STATEMENTS





Independent Auditors' Report                                             F-2


Consolidated Financial Statements

     Consolidated Balance Sheets                                       F-3-4

     Consolidated Statements of Operations                               F-5

     Consolidated Statements of Stockholders' Equity                     F-6

     Consolidated Statements of Cash Flows                             F-7-8

     Consolidated Notes to Financial Statements                       F-9-35



                                      F-1




<PAGE>


                          INDEPENDENT AUDITORS' REPORT



Board of Directors and Stockholders
Spigadoro, Inc.


We have audited the accompanying consolidated balance sheets of Spigadoro, Inc.
and Subsidiaries as of December 31, 2001 and 2000 and the related consolidated
statements of operations, stockholders' equity and cash flows for each of the
three years in the period ended December 31, 2001 (all expressed in Euro). These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.

We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Spigadoro, Inc. and
Subsidiaries as of December 31, 2001 and 2000 and the results of their
operations and their cash flows for each of the three years in the period ended
December 21, 2001 in conformity with accounting principles generally accepted in
the United States of America.

The accompanying financial statements have been prepared assuming that
Spigadoro, Inc. will continue as a going concern. As discussed in Note 1 to the
financial statements, the Company's financing needs (also discussed in Notes 12
and 13), its recurring losses from operations, and its negative working capital
and cash flow raise substantial doubt about its ability to continue as a going
concern. Management's plans in regard to these matters are also described in
Note 1. The financial statements do not include any adjustments that might
result from the outcome of this uncertainty.




                                             /s/ DELOITTE & TOUCHE S.P.A.



Milan, Italy
April 15, 2002



                                      F-2

<PAGE>

                        SPIGADORO, INC. AND SUBSIDIARIES

                           CONSOLIDATED BALANCE SHEETS
                           December 31, 2001 and 2000
<TABLE>
<CAPTION>
                                                              2001            2001          2000
                                                            ---------        -------       -------
                                                         (thousands of        (thousands of Euro)
                                                          Dollars) (1)
<S>                                                      <C>                 <C>             <C>
                        ASSETS

Current assets:
 Cash and cash equivalents                                    $ 3,626          4,093        13,675
 Accounts receivable trade, net of allowance
 for doubtful accounts of Euro 3,277 thousands
 in 2001 and Euro 2,618 thousands in 2000                      36,171         40,834        27,651
 Taxes receivable                                               8,598          9,706         9,063
 Inventories                                                   11,531         13,017        16,431
 Deferred income taxes                                            969          1,094           645
 Other current assets                                           3,166          3,574         2,120
                                                            ---------        -------       -------
  Total current assets                                         64,061         72,318        69,585

Property, equipment and improvements, net                      70,573         79,670        75,546

Other assets:
 Intangible assets, at amortized cost                          12,926         14,592        20,003
 Other assets                                                   2,113          2,386         2,422
 Assets held for disposition                                       36             41           445
                                                            ---------        -------       -------
                                                            $ 149,709        169,007       168,001
                                                            =========        =======       =======
</TABLE>


(1)  Exchange rate: Euro 1.1289 = U.S. $1 as of December 31, 2001, unaudited and
     presented for convenience purposes only.



          See accompanying notes to consolidated financial statements


                                      F-3

<PAGE>

                        SPIGADORO, INC. AND SUBSIDIARIES

                     CONSOLIDATED BALANCE SHEETS (CONTINUED)
                           December 31, 2001 and 2000

<TABLE>
<CAPTION>
                                                                2001           2001         2000
                                                              --------        -------      -------
                                                           (thousands of       (thousands of Euro)
                                                            Dollars) (1)
<S>                                                       <C>               <C>           <C>
         LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
 Short-term borrowings                                        $ 30,642         34,592       55,884
 Current portion of long-term debt                              15,972         18,031        4,020
 Accounts payable                                               36,335         41,019       40,795
 Income taxes payable                                                -              -            -
 Accrued payroll and social contributions                        2,977          3,361        4,105
 Other current liabilities                                       3,464          3,910        3,777
                                                              --------        -------      -------
  Total current liabilities                                     89,391        100,913      108,581

Long-term debt, less current portion                            16,513         18,641       19,084

Revolving credit agreement                                      20,586         23,240

Employees and agents termination
 indemnities                                                     8,399          9,482        8,785

Deferred income taxes                                            2,512          2,836        2,513

Social contributions and income
 taxes payable                                                   2,085          2,354        2,403
                                                              --------        -------      -------
  Total liabilities                                            139,486        157,466      141,366
                                                              --------        -------      -------
Commitments and contingencies

Stockholders' equity:
 Preferred stock, $.01 (Euro .01129) par value,
  authorized 100,000,000, none issued                                -              -            -
 Common stock, $.01 (Lire .01129) par value,
  authorized 100,000,000, issued
  64,730,016 in 2001 and 63,261,037 in 2000                        571            645          630
 Capital in excess of par value                                 32,877         37,115       31,359
 Retained earnings (accumulated deficit)                       (23,006)       (25,971)      (4,218)
 Accumulated other comprehensive income (loss)                      70             79         (809)
 Less treasury stock (102,000 shares in 2001
  and 2000)                                                       (290)          (327)        (327)
                                                              --------        -------      -------
  Total stockholders' equity                                    10,223         11,541       26,635
                                                              --------        -------      -------
                                                              $149,709        169,007      168,001
                                                              ========        =======      =======
</TABLE>

(1)  Exchange rate: Euro 1.1289 = U.S. $1 as of December 31, 2001, unaudited and
     presented for convenience purposes only.


          See accompanying notes to consolidated financial statements

                                      F-4

<PAGE>



                        SPIGADORO, INC. AND SUBSIDIARIES

                      CONSOLIDATED STATEMENTS OF OPERATIONS
                  Years Ended December 31, 2001, 2000 and 1999

<TABLE>
<CAPTION>
                                                               2001                2001             2000            1999
                                                             ---------           -------           ------           -----
                                                           (thousands of     (thousand of Euro,
                                                         Dollars, except per  except per share
                                                         share amounts) (1)       amounts)
<S>                                                      <C>                 <C>              <C>             <C>
Net sales                                                     $161,968            182,846          164,999         135,098

Cost of sales                                                  128,983            145,609          132,467          97,683
                                                             ---------            -------          -------         -------
Gross profit                                                    32,985             37,237           32,532          37,415
                                                             ---------            -------          -------         -------
Operating expenses:
 Selling expenses                                               29,670             33,494           30,783          25,273
 General and administrative expenses                            12,510             14,123           12,868           7,148
 Impairment charges                                              7,087              8,000
                                                             ---------            -------          -------         -------

                                                                49,267             55,617           43,650          32,421
                                                             ---------            -------          -------         -------

(Loss) income from operations                                  (16,281)           (18,380)         (11,119)          4,994
                                                             ---------            -------          -------         -------
Other income (expenses):
 Interest expense                                               (5,456)            (6,159)          (4,738)         (1,501)
 Interest income                                                    86                 97              745               -
 Other, net                                                      2,435              2,749           15,501             (25)
                                                             ---------            -------          -------          ------
                                                                (2,935)            (3,313)          11,507          (1,526)
                                                             ---------            -------          -------          ------
(Loss) income from continuing operations
 before income taxes                                           (19,216)           (21,693)             388           3,468
Income taxes                                                        97                109            2,924           2,283
                                                             ---------            -------          -------          ------
(Loss) income from continuing operations                       (19,313)           (21,802)          (2,535)          1,185
(Loss) income from discontinued operations                          43                 49           (2,072)
                                                             ---------            -------          -------          ------
Net (loss) income                                            $ (19,269)           (21,753)          (4,607)          1,185
                                                             =========            =======          =======          ======
Basic and diluted (loss) earnings per share of
 common stock:
  From continuing operations                                   $ (0.31)             (0.35)           (0.04)           0.02
  From discontinued operations                                    0.00               0.00            (0.04)
                                                             ---------            -------          -------          ------
  Net loss                                                     $ (0.31)             (0.35)           (0.08)           0.02
                                                             =========            =======          =======          ======
Weighted average number of common
 shares outstanding (in thousands):
  Basic and diluted                                             61,340             61,340           58,656          58,095
                                                             =========            =======          =======          ======


</TABLE>


(1)  Exchange rate: Euro 1.1289 = U.S. $1 as of December 31, 2001, unaudited and
     presented for convenience purposes only.


          See accompanying notes to consolidated financial statements


                                      F-5

<PAGE>




           SPIGADORO, INC. AND SUBSIDIARIES

           CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY Years Ended
                        December 31, 2001, 2000 and 1999
              (in thousands of Euro, except as otherwise indicated)
<TABLE>
<CAPTION>
                                   Common Stock                                   Accumulated    Retained
                                -----------------     Capital                        Other        Earnings                Total
                                  Shares             In Excess    Comprehensive  Comprehensive (Accumulated  Treasury  Stockholders'
                                (Millions) Amount   Of Par Value   Income (loss)  Income (loss)   Deficit)     Stock       Equity
                                ---------  ------   ------------   -------------  -------------  -----------  --------  ------------
<S>                            <C>        <C>       <C>            <C>            <C>          <C>         <C>        <C>
Balance, January 1, 1999           10.0      100       12,384             -              -          12,832      (205)      25,111

Issuance of common stock            2.5       25          (25)            -              -               -         -            -
Reverse merger                     48.4      481       16,969             -              -         (13,628)        -        3,822
Translation adjustments               -        -            -            49             49               -         -           49
Net income                            -        -            -         1,185              -           1,185         -        1,185
                                                                    -------
Total comprehensive income            -        -            -         1,234              -               -         -            -
                                   ----     ----      -------       -------          -----        --------    ------     --------

Balance, December 31, 1999         60.9      606       29,327             -             49             389      (205)      30,167
                                   ====     ====      =======       =======          =====        ========    ======     ========
Cancelation of ecrow shares        (0.5)      (6)           6             -              -               -         -            -
Issuance of common stock            2.3       23          177             -              -               -         -          200
Sale of common stock                0.6        6        1,849             -              -               -         -        1,855
Acquisition of treasury shares        -        -            -             -              -               -      (122)        (122)
Translation adjustments               -        -            -          (858)          (858)              -         -         (858)
Net loss                              -        -            -        (4,607)             -          (4,607)        -       (4,607)
                                                                    -------
Total comprehensive loss              -        -            -        (5,465)             -               -         -            -
                                   ----     ----      -------       -------          -----        --------    ------     --------
Balance, December 31, 2000         63.3      630       31,359             -           (809)         (4,218)     (327)      26,635
                                   ====     ====      =======       =======          =====        ========    ======     ========
Cancelation of ecrow shares
Cancelation of ecrow shares        (2.1)     (20)          20                                                                   -
Issuance of common stock                                   26                                                                  26
Issuance of common stock            0.2        2          130                                                                 132
Issuance of common stock            3.4       33        5,580                                                               5,613
Translation adjustments                                                 888            888                                    888
Net loss                                                            (21,753)                       (21,753)               (21,753)
                                                                    -------
Total comprehensive loss                                            (20,309)                                                    -
                                   ----     ----      -------       -------          -----        --------    ------     --------
Balance, December 31, 2001         64.8      645       37,115             -             79         (25,971)     (327)      11,541
                                   ====     ====      =======       =======          =====        ========    ======     ========
Balance, December 31, 2001
(in thousands of Dollars) (1)      64.8     $571      $32,877       $     -          $  70        $(23,006)   $ (290)    $10,223
                                   ====     ====      =======       =======          =====        ========    ======     ========

</TABLE>

(1)  Exchange rate: Euro 1.129 = U.S. $1 as of December 31, 2001,  unaudited and
     presented for convenience purposes only.



          See accompanying notes to consolidated financial statements.


                                      F-6

<PAGE>

                        SPIGADORO, INC. AND SUBSIDIARIES

                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                  Years Ended December 31, 2001, 2000 and 1999

<TABLE>
<CAPTION>
                                                                      2001               2001           2000           1999
                                                                     -------           -------          -----         ------
                                                                 (thousands of           (thousands of Euro)
                                                                  Dollars) (1)
<S>                                                              <C>                  <C>             <C>           <C>
Cash flows from operating activities
 Net (loss) income                                                 $ (19,269)          (21,753)        (4,607)         1,185
 Adjustments to reconcile net (loss) income to net
  cash provided by operating activities:
 (Gain) loss from discontinued operations                                                   (49)         2,072              -
 Gain on sale of securties                                                 -                          (14,776)             -
 Depreciation                                                          6,212             7,013          5,601          2,330
 Amortization                                                          1,468             1,657          1,789            765
 Provision for employees and agents
  termination indemnities                                              1,153             1,302          1,293          1,079
 Provision for doubtful accounts                                       1,253             1,415          1,546            856
 Impairment charges                                                    7,086             8,000
 Assets held for disposition                                               -
 Deferred income taxes                                                  (112)             (126)         2,297           (221)
 Other non-cash items, net                                                16                18            227            140
 Payment of employees and agents
  termination indemnities                                             (1,230)           (1,389)        (2,150)        (1,806)
 Stock issued for services and settlements                               136               154            200              -
 Changes in operating assets and liabilities:                                                 -
 Accounts receivable trade                                           (12,929)          (14,597)         3,756         10,764
 Inventories                                                           2,692             3,039          2,145          1,736
 Accounts payable and other current liabilities                           79                89          6,474         (2,483)
 Accrued payroll and social contributions                             (1,278)           (1,443)          (102)           (13)
 Other, net                                                             (530)             (598)         1,059           (668)
                                                                     -------           -------          -----         ------

Net cash (used in) provided by operating activites                   (15,254)          (17,268)         6,826         13,666
                                                                     -------           -------          -----         ------

Cash flows from investing activities
 Acquisition of business, net of cash acquired                             -                          (12,903)             -
 Net proceeds from sale of securities                                      -                           17,263              -
 Purchases of property, equipment
  and improvements                                                    (3,853)           (4,350)        (5,669)        (1,348)
 Proceeds from disposal of property, equipment
  and improvements                                                     1,167             1,317            216            433
 Proceeds from disposal of intangible assets                             449               507
 Additions to intangible assets                                       (1,204)           (1,359)          (705)        (1,326)
 Cash of business acquired                                                10                11                         4,120
                                                                     -------           -------          -----         ------

Net cash (used in) provided by investing activities                   (3,431)           (3,874)        (1,797)         1,879
                                                                     =======           =======         ======         ======
</TABLE>


(1)  Exchange rate: Euro 1.129 = U.S. $1 as of December 31, 2001,  unaudited and
     presented for convenience purposes only.



          See accompanying notes to consolidated financial statements.

                                      F-7

<PAGE>


                        SPIGADORO, INC. AND SUBSIDIARIES

          CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED) Years Ended
                        December 31, 2001, 2000 and 1999
<TABLE>
<CAPTION>
                                                               2001            2001           2000        1999
                                                             -------          -----          ------       -----
                                                         (thousands of               (thousands of Euro)
                                                          Dollars) (1)
<S>                                                      <C>                <C>           <C>            <C>
Cash flows from financing activities
 Proceeds from issuance of common stock                            -               -           1,855           -
 Purchase of treasury stock                                        -               -            (122)          -
 Repayment of notes payable                                        -                         (15,222)          -
 Loan to employee                                                  -               -            (108)          -
 Proceeds from long-term debt                                 11,316          12,775             607       5,151
 Payments of long-term debt                                   (2,965)         (3,347)         (3,544)     (4,448)
 Net change in short-term borrowings                           3,554           4,012          15,829      (8,432)
                                                             -------           -----          ------       -----
Net cash provided by (used in) financing activities           11,905          13,440            (705)     (7,729)
                                                             -------           -----          ------       -----
Effect of exchange rate on cash                               (1,664)         (1,879)          1,089           -
                                                             -------           -----          ------       -----

Net (decrease) increase  in cash and
 cash equivalents                                             (8,443)         (9,581)          5,412       7,815

Cash and cash equivalents, beginning of year                  12,113          13,674           8,263         448
                                                             -------           -----          ------       -----

Cash and cash equivalents, end of year                       $ 3,669           4,093          13,675       8,263
                                                             =======           =====          ======       =====


Supplemental disclosure of cash flow information,
 cash paid during the year for:
  Interest                                                   $ 5,517           6,228           3,533       1,756
                                                             =======           =====          ======       =====

  Income taxes                                               $   513             579           2,198       2,053
                                                             =======           =====          ======       =====


Non-cash disclosure of investing and financing
 activity for the year ended December 31, 1999
 represents push-down adjustments of:
  Property, plant and equipment                              $     -               -          23,928           -
                                                             =======           =====          ======       =====

  Intangible assets                                          $     -               -           9,081           -
                                                             =======           =====          ======       =====
</TABLE>


(1) Exchange rate: Euro 1.129 = U.S. $1 as of December 31, 2001, unaudited and
      presented for convenience purposes only.




                                      F-8


<PAGE>


                        SPIGADORO, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                       (in thousands of Dollars and Euro)


NOTE 1 -   ORGANIZATION AND BASIS OF PRESENTATION:

           Spigadoro, Inc. ("Spigadoro" or the "Company") (formerly IAT
           Multimedia, Inc.) was incorporated under the laws of Delaware in
           September 1996. Spigadoro, prior to December 1999, marketed
           principally in Germany, high performance personal computers, computer
           hardware, components and peripherals through retail stores, telephone
           and mail order sales. At a special meeting of stockholders in
           December 1999, the stockholders approved the acquisition of Petrini
           S.p.A. and Subsidiary (Petrini) from Gruppo Spigadoro N.V. (N.V.),
           the sole shareholder of Petrini in exchange for the issuance of
           48,366,530 shares of the Company's common stock representing
           approximately 79% of outstanding common stock and the assumption of
           certain obligations of N.V. In connection with the Petrini
           acquisition, the assets and liabilities have been recorded pursuant
           to the pushdown method of accounting. This method reflects the
           allocations of consideration paid for the stock of Petrini to the
           fair values of the respective assets acquired and liabilities assumed
           on the same basis as that of N.V. At this special meeting the
           shareholders also approved, among other things, the name change of
           the corporation from IAT Multimedia, Inc. to Spigadoro, Inc., and
           authorized the Board to adopt the 1999 Stock Option Plan. In addition
           to purchase accounting adjustments required for Spigadoro, Petrini
           was also required to reflect purchase accounting adjustments
           resulting from N.V.'s acquisition of 100% of the Petrini stock prior
           to the acquisition by Spigadoro. The cost of the acquisition by N.V.
           has been allocated to the assets of Petrini based on their fair
           market values with any excess allocated to goodwill. The goodwill is
           being amortized over a fifteen-year period.

           Petrini principally produces and sells pasta, flour and animal feed
           throughout the world. The products are manufactured in factories
           located in Italy. As a result of the Petrini acquisition, the
           shareholders of Petrini have control of Spigadoro and the acquisition
           has been accounted for as a reverse acquisition. In a reverse
           acquisition, although Spigadoro was the legal acquirer, Petrini is
           considered the acquirer for accounting purposes. Therefore, the
           financial statements for all periods presented prior to the December
           1999 acquisition date are those of Petrini with the financial
           statements of Spigadoro only included from the December 1999
           acquisition date. The shareholders equity section of the balance
           sheet is that of Petrini adjusted retroactively to give effect to the
           par value and number of shares of Spigadoro common stock issued.

           The financial statements of Spigadoro, Inc. and Subsidiaries have
           been prepared in Euro, the Company's functional currency, since
           principally all of the continuing operations are headquartered in
           Italy. Subsidiaries located in the United States, Switzerland and
           Germany have been converted to Euro from US dollars, Swiss Francs and
           Deutsche Marks using the exchange rate at the end of the period for
           balance sheet items and the average exchange rates for the period for
           statement of operations items. The translation differences are
           recorded as accumulated other comprehensive income in the
           consolidated statements of shareholders' equity.

           The consolidated financial statements of the Company, including U.S.
           dollar information in the notes to consolidated financial statements,
           have been translated into U.S. Dollars for the convenience of the
           readers and have been made at the rate of Euro 1.1289 to U.S. $1,
           approximating the Noon Buying rate of the Federal Reserve Bank of New
           York at December 31, 2001. All monetary amounts are in thousands of
           Euro and U.S. Dollars excluding per share information. Such
           translation should not be construed as a representation that the Euro
           amounts could be converted into U.S. Dollars at that, or any other
           rate.



                                      F-9



<PAGE>

                        SPIGADORO, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                       (in thousands of Dollars and Euro)


NOTE 1 -   ORGANIZATION AND BASIS OF PRESENTATION (CONTINUED):

           The accompanying financial statements have been prepared on a going
           concern basis, which contemplates the realization of assets and the
           satisfaction of liabilities in the normal course of business. As
           shown in the financial statements, during the year ended December 31,
           2001 the Company incurred net losses of Euro 21,753 ($19,269) and, as
           of December 31, 2001, the Company's current liabilities exceeded its
           current assets by Euro 28,595 ($25,330). The financial statements do
           not include any adjustments relating to the recoverability and
           classification of recorded asset amounts or the amounts and
           classification of liabilities that might be necessary should the
           Company be unable to continue as a going concern. However, in order
           to address the disappointing results of the year 2001, management has
           started implementing a restructuring plan devised to continue
           reducing fixed costs, while improving gross margins and cash flows in
           order to sustain operations. Based on actions undertaken in year 2001
           and currently this year, management believes the Company should be
           able to generate sufficient cash flow to meet its obligations on a
           timely basis, to comply with the terms of its financing agreements,
           to obtain additional financing or refinancing as may be required, and
           ultimately to attain profitable operations. In addition, the Company
           is exploring the possibility of selling certain assets, including
           certain non-essential real estate assets, the value of which, the
           Company believes, exceed its current book value.

NOTE 2 -   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

           PRINCIPLES OF CONSOLIDATION - The consolidated financial statements
           include the accounts of Spigadoro, Inc., its wholly-owned
           subsidiaries Petrini S.p.A. (Petrini), Petrini Foods International
           Inc., Pastifico Gazzola S.p.A. (Gazzola), Spigadoro Food S.p.A., IAT
           AG, Switzerland (IAT AG), IAT Deutschland GmbH Interactive Medien
           Systeme Bremen (IAT GmbH), and 100% of both the General Partner, the
           limited partnership interest in Columbus-Computer-Handels und
           Vertriebs GmbH & Co. KG (Columbus) (collectively the Company). All
           intercompany accounts and transactions have been eliminated.

           CASH AND CASH EQUIVALENTS - The Company maintains its cash and cash
           equivalents with financial institutions in accounts which at times
           may exceed insured limits. The Company has not experienced any losses
           in such accounts and believes it is not subject to any significant
           credit risk on cash. The Company considers all highly liquid debt
           instruments purchased with a maturity of three months or less to be
           cash equivalents.

           USE OF ESTIMATES - The preparation of the financial statements in
           conformity with accounting principles generally accepted in the
           United States of America requires management to make estimates and
           assumptions that affect the reported amounts of assets and
           liabilities and disclosure of contingent assets and liabilities at
           the date of the financial statements and the reported amounts of
           revenues and expenses during the reporting period. Actual results
           could differ from these estimates.

           INVENTORIES - Inventories are carried at the lower of cost or market
           value, using the weighted average cost method.

           PROPERTY, EQUIPMENT AND IMPROVEMENTS - Property, equipment and
           improvements are stated at cost. Depreciation and amortization are
           provided using the straight-line method over the following estimated
           useful lives:

             Buildings and improvements                   10-35 Years
             Machinery, equipment and other                4-20 Years
             Software                                      3-5 Years


           GOVERNMENT GRANTS - Government grants on new property, plant and
           equipment acquired in accordance with Government's plans are
           recorded when authorized. Such grants are reflected as a
           reduction in the related property, plant and equipment.



                                      F-10

<PAGE>

                        SPIGADORO, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                       (in thousands of Dollars and Euro)

NOTE 2 -   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED):

           IMPAIRMENT OF LONG-LIVED ASSETS - The Company reviews its long-lived
           assets for impairment whenever events or changes in circumstances
           indicate that the carrying amount of the assets may not be fully
           recoverable. To determine the recoverability of its long-lived
           assets, the Company evaluates the probability that future
           undiscounted net cash flows will be less than the carrying amount of
           the assets. Impairment is the amount by which the carrying value of
           the asset exceeds its fair value.

           EXCESS OF COST OVER NET ASSETS ACQUIRED - Goodwill represents the
           excess of cost over the fair market value of net assets of an
           acquired business and is amortized over periods of 15 to 20 years
           from the acquisition date. The Company monitors the cash flows of the
           acquired operations to assess whether any impairment of recorded
           goodwill has occurred.

           INTANGIBLE ASSETS - Trademarks represent the amount of the purchase
           price allocated to the "Supermangimi Petrini" tradename as determined
           by independent appraisers. Amortization is provided on a
           straight-line basis over 17 years. Other intangible assets represent
           primarily patents and are amortized over their respective lives, not
           longer than five years.

           The Company has capitalized software costs in accordance with the
           American Institute of Certified Public Accountants' Statement of
           Position (SOP) 98-1, "Accounting for the Costs of Computer Software
           Developed or Obtained for Internal Use." This statement requires
           capitalization of certain costs incurred in the development of
           internal use software, including external direct material and service
           costs, employee payroll and payroll related costs. For the years
           ended December 31, 2001, 2000 and 1999, the Company capitalized Euro
           591 ($523), Euro 525, and Euro 323 net of accumulated depreciation of
           Euro 1,721 ($1,524), Euro 1,130, and Euro 95, respectively.

           REVENUE RECOGNITION - Revenue from sale of products is recorded when
           ownership is transferred to the customers, which is when shipment is
           made. It is not the Company's policy to accept returns; in specific
           cases, returns are accepted, however, the Company has not experienced
           any significant amounts of such returns. Revenue is presented net of
           returns and net of quantity, cash and other discounts.

           RESEARCH AND DEVELOPMENT - Research and development costs relate to
           the development of both present and future products and are charged
           to expense as incurred. Research and development expenses recorded by
           the Company totaled approximately Euro 271 ($240), Euro 325 and Euro
           544, for the fiscal years ended December 31, 2001, 2000 and 1999,
           respectively.

           INCOME TAXES - The Company complies with Statement of Financial
           Accounting Standards No. 109 (SFAS 109) "Accounting for Income
           Taxes", which requires an asset and liability approach to financial
           reporting for income taxes. Deferred income tax assets and
           liabilities are computed based on differences between the financial
           reporting and tax basis of assets and liabilities that will result in
           taxable or deductible amounts in the future based on enacted tax laws
           and rates applicable to the period in which the differences are
           expected to affect taxable income. Valuation allowances are
           established, when necessary, to reduce the deferred income tax assets
           to the amount expected to be realized.

           STATEMENTS OF CASH FLOWS - The Company's short-term borrowings arise
           primarily through short-term credit facilities. The short-term
           borrowings are normally payable on demand. The cash flows from these
           items are included under the caption "Net Change in Short-Term
           Borrowings" in the statements of cash flows.

           FAIR VALUE OF FINANCIAL INSTRUMENTS - The carrying amounts of cash,
           accounts receivable and accounts payable and notes payable to banks
           approximate fair value because of the short-term nature of these
           items. The carrying amount of substantially all of the Company's
           long-term debt approximates fair value due to the floating interest
           rate on the debts.


                                      F-11

<PAGE>



                        SPIGADORO, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                       (in thousands of Dollars and Euro)

NOTE 2 -   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED):

           RECENT FINANCIAL ACCOUNTING ANNOUNCEMENTS - In June 1998, the FASB
           issued SFAS No. 133, Accounting for Derivative Instruments and
           Hedging Activities, as amended by SFAS 137, Accounting for Derivative
           Instruments and Hedging Activities-Deferral of the Effective Date of
           FASB Statement No 133 and SFAS 138, Accounting for Certain Derivative
           Instruments and Certain Hedging Activities- an amendment of FASB
           Statement No. 133. This statement establishes accounting and
           reporting standards for derivative instruments and requires
           recognition of all derivatives as assets or liabilities in the
           balance sheet and measurement of these instruments at fair value. The
           statement, as amended, is effective for fiscal years beginning after
           June 15, 2000. The Company adopted this standard, as amended, on
           January 1, 2001. The adoption of this statement did not have a
           material impact on the financial position, results of operations, or
           cash flows of the Company.

           In June 2001, the Financial Accounting Standards Board issued
           Statement of Financial Accounting Standards No. 141, "Business
           Combinations." Statement 141 addresses financial accounting and
           reporting for business combinations initiated after June 30, 2001 and
           supersedes Accounting Principles Board Opinion No. 16, "Business
           Combinations." The most significant accounting differences from
           Opinion 16 are that Statement 141 requires that all business
           combinations be accounted for under the purchase method, thereby
           eliminating the pooling-of-interests method, and establishes new
           criteria for identifying acquired intangibles separately from
           goodwill with the expectation that more intangibles will now be
           identified. Statement 141 also expands the disclosure requirements of
           Opinion 16. The provisions of Statement 141 apply prospectively to
           business combinations initiated after June 30, 2001. Because we
           historically have not been able to meet the criteria for
           pooling-of-interests accounting, the elimination of that method is
           expected to have no effect on us.

            In June 2001, the Financial Accounting Standards Board also issued
           Statement of Financial Accounting Standards No. 142, "Goodwill and
           Other Intangible Assets." Statement 142 addresses financial
           accounting and reporting for acquired goodwill and other intangible
           assets and supersedes Accounting Principles Board Opinion No. 17,
           "Intangible Assets." Statement 142 adopts an aggregate approach to
           goodwill, compared with the transaction-based approach of Opinion 17,
           by accounting for goodwill on combined reporting units that include
           an acquired entity. The more significant accounting provisions of
           Statement 142 are that (1) goodwill and other identified intangible
           assets that have indefinite useful lives will no longer be amortized,
           (2) goodwill and any other intangible asset with an indefinite useful
           life will be tested for impairment at least annually and (3)
           intangibles with finite useful lives will continue to be amortized.
           Statement 142 also expands the required disclosures for goodwill and
           other intangible assets. The provisions of Statement 142 are
           effective starting with the first quarter of 2002. The carrying
           amount of our goodwill at December 31, 2001 was Euro 12,287
           ($10,884). Amortization of goodwill for 2001 was Euro 1,076 ($953).
           Under the provisions of Statement 142, we will no longer amortize
           goodwill commencing with the first quarter of 2002. We will instead
           review the carrying amount of goodwill at least annually for any
           impairment and recognize an impairment loss if the carrying amount of
           goodwill is not recoverable and its carrying amount exceeds its
           implied fair value. Our intangible assets other than goodwill,
           principally trademarks, with a carrying amount of Euro 2,305 ($2,041)
           as of December 30, 2001, have finite useful lives and will not be
           affected by Statement 142.

           In October 2001, the FASB issued SFAS No. 144, "Accounting for the
           Impairment of Disposal of Long-Lived Assets." This statement will be
           effective for fiscal years beginning after December 15, 2001. This
           statement established a single accounting model, based upon the
           framework established in SFAS No. 121, "Accounting for the Impairment
           of Long-Lived Assets and for Long-Lived Assets to be Disposed of,"
           for long-lived assets to be disposed of by sale or to address
           significant implementation issues. The Company is in the process of
           assessing the impact of the adoption of this statement on its
           consolidated financial position, results of operations and cash
           flows.

                                      F-12


<PAGE>

                        SPIGADORO, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                       (in thousands of Dollars and Euro)

NOTE 2 -   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED):

           STOCK OPTIONS - The Comp[any accounts for its stock based
           compensation plans in accordance with the provisions of APB 25. The
           Company has adopted the disclosure requirements of Statement of
           Financial Accounting Standards No. 123 (SFAS 123), "Accounting for
           Stock-Based Compensation".

           INCOME (LOSS) PER COMMON SHARE - The Company complies with Statement
           of Financial Accounting Standards No. 128 (SFAS 128), "Earnings Per
           Share". SFAS 128 requires dual presentation of basic and diluted
           earnings per share for all periods presented. Basic earnings per
           share is computed by dividing income of the entity by the weighted
           average number of common shares outstanding for the period. Basic
           earnings per share excludes shares held in treasury and shares held
           in escrow pending release upon the occurrence of specified economic
           events. Shares held in treasury were 102,000 at December 31, 2001 and
           2000 and 50,000 at December 31, 1999. Shares held in escrow were nil
           in December 31, 2001, 2,125,000 at December 31, 2000 and 498,285 at
           December 31, 1999. Diluted earnings per share reflects the potential
           dilution that could occur if securities or other contracts to issue
           common stock were exercised or converted into common stock or
           resulted in the issuance of common stock that then shared in the
           earnings of the entity. Diluted income per common share is the same
           as basic income per common share for the years ended December 31,
           2001, 2000 and 1999. At December 31, 2001, the Company has
           unexercised stock options to purchase 3,600,457 shares, and has
           unexercised common stock purchase warrants to purchase 2,771,726
           shares.


NOTE 3 - ACQUISITIONS:

           In December 2001, Petrini acquired Pastificio Etrusco S.p.A. (now
           Spigadoro Food S.p.A.). Pacificio Etrusco S.p.A. ("Spigadoro Food")
           manufactures pastas, including pastas with organic ingredients. The
           acquisition was made with the objective of acquiring a modern plant
           to replace the Company's pasta production plant in Bastia Umbra and
           to gain entry into the organic food niche. The Company acquired
           Spigadoro Food for stock valued at approximately $5,000,000, or
           3,372,094 shares (subject to adjustment as set forth below) based
           upon a contractually agreed upon valuation of $1.50 per share. The
           market value of our common stock immediately prior to the closing was
           $0.29 per share and $0.14 on April 12, 2002. Etrusco's sales for
           fiscal 2001 were approximately $11.5 million. A principal motivating
           factor for the acquisition was the fact that Etrusco operates from a
           modern facility located close to Spigadoro's Bastia facility, and we
           have to date transferred approximately 83% of the pasta production
           from our Bastia facility to the more efficient facility of Etrusco.
           We anticipate that such consolidation of production will generate
           substantial annual cost savings.

           The shares the Company issued as consideration for the acquisition
           will be subject to a lock-up and cannot be sold until December 22,
           2003, at which time up to 50% of the shares can be sold. The
           remaining 50% of the shares are subject to sale beginning on
           December 22, 2004. The lock-up will be released as to a percentage
           of the shares, which percentage will be equal to the percentage of
           any of our shares held by the Vertical Group that might be sold by
           Vertical prior to the expiration of the lock-up.



                                      F-13
<PAGE>
                        SPIGADORO, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                       (in thousands of Dollars and Euro)


 NOTE 3 -ACQUISITIONS (CONTINUED):

           Pursuant to the acquisition agreement, we agreed that, in the event
           that our common stock is not valued at $1.50 per share or more as of
           the closing of the stock market on the last trading day prior to each
           of the two dates above, we would issue to the seller additional
           shares of common stock to compensate them for the difference between
           $1.50 per share and the then current market value of our common
           stock. We also have the right at any time to repurchase the shares
           for $1.50 in cash or to pay to the seller in cash the difference
           between $1.50 and the price at which any shares are sold. The
           existence of the price protection provision could require us to
           either pay in cash the difference between approximately $5 million
           and the then current market value of the shares or issue a
           substantial number of additional shares to the seller in the event
           that the market price target is not achieved and we elect not to pay
           cash, thereby causing potentially substantial dilution to
           shareholders.

                                                        Dollars          Euro
                                                       ---------       -------

           Current assets                               $ 2,034         2,296
           Property, plant and equipment                  6,111         6,899
           Intangilbes                                       43            48
           Goodwill                                       3,155         3,562
                                                      ----------       -------
             Total assets aquired                        11,343        12,805

           Current liabilities                            5,712         6,448
                                                      ----------       -------

           Net assets aquired                           $ 5,631         6,357
                                                      ==========       =======


                                                        Dollars          Euro
                                                        -------        -------

           Cost of acquisition                          $ 5,631         6,357

           Spigadoro Food net equity December 2001        1,372         1,550
                                                        -------         -----
           Total excess cost                            $ 4,259         4,807
                                                        =======         =====


           The excess cost was allocated as follows:
           Property, plant & equipment                  $ 1,656         1,869
           Goodwill                                       3,156         3,562
           Deferred tax liabilities                        (553)         (624)
                                                        -------         -----
                                                        $ 4,259         4,807
                                                        =======         =====

           In May 2000, Petrini acquired all of the issued and outstanding
           shares of Pastificio Gazzola S.p.A. (Gazzola). Gazzola produces and
           sells pasta and cous-cous principally for the private label market,
           but also under its own trademarks. It sells its products in Italy and
           abroad. The aggregate purchase price including acquisition expenses
           was Euro 15,011($13,297). In addition, the Company issued 583,334



                                      F-14

<PAGE>

                        SPIGADORO, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                       (in thousands of Dollars and Euro)

NOTE 3 -ACQUISITIONS (CONTINUED):

           shares of its common stock to the parent company of Gazzola and
           received cash proceeds of Euro 1,867 ($1,653). The agreement provided
           for additional payments to the sellers of up to Euro 5,165 ($4,575)
           subject to certain conditions. The Company has also guaranteed the
           obligations of Petrini with respect to the additional contingent
           payments and issued 2,125,000 shares of its common stock which was
           being held in escrow, to satisfy such obligations if required. At
           December 31, 2001, the escrow shares were returned.

           The acquisition was accounted for as a purchase and the purchase
           price was allocated on the basis of the relative fair value of the
           assets acquired and the liabilities assumed as follows:

                                                       Dollars      Euro
                                                      --------    --------
          Purchase price                              $ 13,297      15,011
          Gazzola net equity, April 30, 2000               141         159
                                                      --------    --------

          Total excess cost                           $ 13,156      14,852
                                                      ========    ========


          The excess cost was allocated as follows:
          Property, plant and equipment               $  5,009       5,655
          Allowance for doubtful accounts               (1,718)     (1,940)
          Inventories                                     (141)       (160)
          Deferred tax liabilities                        (360)       (407)
          Goodwill                                      10,366      11,704
                                                      --------    --------

                                                      $ 13,156      14,852
                                                      ========    ========

           In December 2001, approximately Euro 8,000 ($7,088) of goodwill
           relating to the Gazzola acquisition was written off as being
           impaired.

           The following unaudited pro forma condensed statements of operations
           for the years ended December 31, 2001 and 2000 give effect to the
           acquisition of Gazzola as if it occurred on January 1 of 2000 and the
           acquisition of Spigadoro Food as if it occurred on January 1 of each
           year.

                                               Year Ended December 31,
                                            2001                   2000
                                    -------------------   --------------------
                                    (Dollars)    Euro     (Dollars)     (Euro)

          Net sales                 $ 173,155   195,434   $ 166,681    188,128
                                    =========   =======   =========   ========

          Loss from continuing
           operations               $ (20,972)  (23,071)  $  (5,953)    (6,719)
                                    =========   =======   =========   ========

          Net loss                  $ (20,929)  (23,622)  $  (7,788)    (8,791)
                                    =========   =======   =========   ========

          Loss per share, basic
           and diluted              $   (0.32)    (0.37)  $   (0.13)     (0.14)
                                    =========   =======   =========   ========

          Weighted average number
           of shares (in thousands)    64,620    64,620      62,028     62,028
                                    =========   =======   =========   ========


                                      F-15
<PAGE>

                        SPIGADORO, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                       (in thousands of Dollars and Euro)


NOTE 4 -    ACCOUNTS RECEIVABLE TRADE:

           Starting from June 1999, the Company executed contracts with a
           factoring agency for the sale without recourse of trade receivables.
           Pursuant to the contract, the Company continues to collect, on behalf
           of the factor, and account for the collection of the receivables sold
           to the factoring agency. The amount of such collections are included
           in cash and cash equivalents and the liability to the factoring
           agency is reported as short-term borrowings for an amount of Euro
           8,387 ($7,429) and Euro 9,869 at December 31 2001 and 2000,
           respectively. The interest rate on unremitted funds is EURIBOR plus
           .4 to .5%.

           At December 31, 2001 and 2000, the amount of receivables sold and not
           yet collected on behalf of the factor was Euro 13,997 ($12,398) and
           Euro 24,522, respectively.

NOTE 5 -   SALE OF EQUITY INTEREST IN SUBSIDIARY:

           Under a stock purchase agreement dated January 19, 2000, the Company
           sold its 100% ownership of the General Partner of FSE Computer Handel
           GmbH & Co KG ("FSE") and its 80% ownership of the limited partnership
           interest of FSE for approximately Euro 205 ($182) which is payable
           over a five-year period. FSE marketed the Company's high performance
           personal computers in Germany. The sale did not result in a gain or
           loss for the year ended December 31, 2000 as the investment was
           written down to net realizable value at December 31, 1999.

NOTE 6 -   OTHER, NET

           In a series of transactions commencing in February 2000, the Company
           sold all of its 750,000 shares of Algo Vision plc previously held as
           securities available for sale for approximately Euro 17,819
           ($15,785), resulting in a realized net gain of Euro 14,712 ($13,085)
           which is included in other income.

           In 2001, the Company determined that certain accruals previously
           recorded are no longer valid obligations and reversed liabilities of
           approximately Euro 2,900 ($2,569), which is included in other income.

NOTE 7 - INVENTORIES:

           At December 31, 2001 and 2000, inventories consisted of:


                                            2001      2001      2000
                                           -------   -------   -------
                                          (Dollars)       (Euro)
           Raw materials and consumables   $ 6,856     7,740    10,252
           Work-in-process                     120       136       101
           Finished goods                    4,555     5,141     6,078
                                           -------   -------   -------

                                           $11,531    13,017    16,431
                                           =======   =======   =======


                                      F-16


<PAGE>


                        SPIGADORO, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                       (in thousands of Dollars and Euro)


NOTE 8 -   PROPERTY, EQUIPMENT AND IMPROVEMENTS, NET:

           At December 31, 2001 and 2000, property, equipment and improvements
           consisted of:

                                              2001       2001       2000
                                            --------   --------   --------
                                            (Dollars)         (Euro)
           Land                             $  5,477      6,184      6,150
           Building and improvements          32,610     36,813     32,874
           Machinery, equipment and other    105,791    119,427    104,295
                                            --------   --------   --------

                                             143,878    162,424    143,319
           Less accumulated depreciation
            and amortization                  73,305     82,754     67,773
                                            --------   --------   --------

                                            $ 70,573     79,670     75,546
                                            ========   ========   ========


           Depreciation for the years ended December 31, 2001, 2000 and 1999 was
           approximately Euro 7,013 ($6,212), Euro 5,601 and Euro 2,330,
           respectively.

           Substantially all of the long-term debt other than the working
           capital facility is secured by liens on the property of our operating
           subsidiaries. A portion of the long-term debt is subsidized by
           government agencies.

NOTE 9 -   INTANGIBLE ASSETS, AT AMORTIZED COST:

           At December 31, 2001 and 2000, intangible assets consisted of:


                                              2001        2001        2000
                                            --------    --------    --------
                                           (Dollars)          (Euro)

           Goodwill                         $ 11,362      12,827      19,747
           Intangible assets                   5,502       6,210       6,550
                                            --------    --------    --------

                                              16,864      19,037      26,297
           Less: accumulated amortizaiton     (3,938)     (4,445)     (6,294)
                                            --------    --------    --------
           Total                            $ 12,926      14,592      20,003
                                            ========    ========    ========



           Amortization for the years ended December 31, 2001, 2000 and 1999 was
           approximately Euro 1,657 ($1,468); Euro 1,789 and Euro 765. In 2001,
           the Company determined that the cash flows from their Gazzola
           investment was not sufficient to recover the carrying value and
           recorded an impairment charge of Euro 8,000,000 ($7,088,000), thereby
           reducing goodwill.



                                      F-17

<PAGE>

                        SPIGADORO, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                       (in thousands of Dollars and Euro)



NOTE 10 - OTHER ASSETS:

              At December 31, 2001 and 2000, other assets consisted of:

                                                      2001     2001     2000
                                                     ------   ------   ------
                                                   (Dollars)       (Euro)
               Investments                           $  159      179      178
               Receivable from Spigadoro NV             220      248      239
               Advances on employees leaving
                indemnities                             726      820      771
               Accounts receivable over 12 months       384      434      110
               Other                                    624      705    1,124
                                                     ------   ------   ------
               Total                                 $2,113    2,386    2,422
                                                     ======   ======   ======


NOTE 11 -     SHORT-TERM BORROWINGS:

              At December 31, 2001 and 2000, the Company had unsecured
              short-term lines of credit with the ability to borrow
              approximately Euro 39,000 ($34,500) and Euro 52,400, respectively,
              from banks, of which approximately Euro 12,800 ($11,300) and Euro
              36,600, respectively, were available for further borrowing.
              Amounts outstanding under these lines of credits are normally
              payable upon demand.

              At December 31, 2001 and 2000, the weighted average interest rates
              for these lines of credit were 6.31% and 6.54%, respectively.

              Bank borrowings are represented by overdrafts for Euro 26,205
              ($23,210) and Euro 25,091, respectively, at December 31, 2001 and
              2000 (including lines of credit for the discounting of
              "agriculture" drafts a technical form of borrowing applicable to
              the sector in which the Company operates, which is based on the
              discounting of drafts) for Euro 2,066 ($1,830) at December 31,
              2001 and 2000, included in the short-term borrowings at December
              31, 2000 is also the liability to the factoring agency for an
              amount of Euro 8,387 ($7,429), as indicated in Note 4.

NOTE 12 -     REVOLVING CREDIT AGREEMENT:

              In addition during April 2000, the Company obtained a Euro 23,240
              ($20,506) syndicated loan for the acquisition of Gazzola S.p.A.,
              which matures in October 2001.

              In October 2001, our Euro 30.98 million ($27.4 million) working
              capital facility, originally secured in April 2000 in connection
              with the Gazzola acquisition, matured. To date, we have drawn down
              Euro 23.2 million ($20.6 million) of this facility. Since October,
              we have been negotiating with a consortium of banks regarding a
              refinancing of this facility. We have recently reached an
              agreement with the various banks that provides for an extension of
              the original facility for a period of 24 months from October 2001;
              provided, that we will be required to repay approximately 10% of
              the principal amount in April 2003, 50% of the outstanding
              principal amount in June 2003, and the remaining outstanding
              balance in October 2003. Outstanding amounts will bear interest at
              a rate equal to EURIBOR plus 125 basis points.

              In addition, pursuant to the new extension agreement, we will be
              required to pay portions of the outstanding balance beginning in
              April 2003, and we anticipate that we will be required to finance
              all or a portion of such prepayment obligations prior to the new
              maturity dates. We currently have no firm agreements or
              arrangements to obtain any such financing, and our inability to
              secure such financing would have a material adverse effect on our
              operations and financial condition.


                                      F-18
<PAGE>


                        SPIGADORO, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                       (in thousands of Dollars and Euro)


NOTE 13 -     LONG-TERM DEBT:

              At December 31, 2001 and 2000, long-term debt consisted of:
<TABLE>
<CAPTION>
                                                              2001      2001     2000
                                                           ---------  --------  ------
                                                           (Dollars)        (Euro)
Mortgage notes (a):
<S>                                                       <C>          <C>      <C>
Euro 2,582 ($2,287), due July 31, 2006, variable
 interest based on 6 months EURIBOR plus 0.6%                $1,698    1,917    2,257
Euro 132 ($117), due July 1, 2001, fixed annual
 interest rate of 4.40%                                          61       69       84
Euro 516 ($457), due June 15, 2004, variable interest
 based on the European Bank's discount rate
 (5.90% at December 31, 2000)                                                     226
Euro 2,582 ($2,287), due September 30, 2002, variable
 interest 50% based on semiannual Italian Treasury
 Bonds average rate and 50% listed bonds average
 rate plus 1.0 (annual rate of 4.92% and 6.07% at
 December 31, 2001 and 2000, respectively)                      352      397      795
Euro 263 ($232), due November 30, 2011, fixed annual
 interest rate of 6.85%                                                           229
Euro 1,704 ($1,509), due March 31, 2007, variable
 interest based on 6 months RIBOR plus 1 (4.60%
 and 6.15% at December 31, 2001 and 2000,
 respectively)                                                1,021    1,153    1,310
Euro 2,568 ($2,275), due May 31, 2006 variable interest
 based on the 6 months EURIBOR plus 0.6                       1,477    1,667    2,078
Euro 1,172 ($1,038), due February 9, 2007, fixed annual
 interest rate of 1.89%                                       1,038    1,172      493
Euro 103 ($91), due June 30, 2003, variable interest
 at 5.025%                                                       48       54       87
Euro 520 ($460), due June 28, 2006, fixed annual
 interest of 8.7%                                               271      306      360
Euro 2,066 ($1,830), due March 15, 2005, variable interest
  rate based on annual interest rate of European
  bank of Investment ("EBI")                                    801      904    1,162
Euro 1,033 ($915), due September 15, 2005, variable
 interest based on annual interest rate of European
 Bank of Investment ("EBI")                                     457      516      646
Euro 3,099 ($2,745), due March 15, 2004, fixed annual
 interest rate of 11.35%                                      1,006    1,136    1,544
Euro 10,329 ($9,150), due December 1, 2008, variable
 interest rate based on 6 months RIBOR plus 1.2%              9,150   10,329   10,329
Long-term drafts for capital expenditures in
 machinery and equipment (2) (3)                                721      814    1,504

</TABLE>




                                      F-19


<PAGE>

                        SPIGADORO, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                       (in thousands of Dollars and Euro)



NOTE 13 -     LONG-TERM DEBT (CONTINUED):

                                                 2001       2001        2000
                                               --------   ---------    --------
                                               (Dollars)         (Euro)

Euro 3,098 ($2,744), due September 30, 2008,
 variable interest rate based on 3 months
 EURIBOR plus 0.9%                                2,401       2,711
Euro 102 ($90), due may 10, 2003,
 variable interest rate based on 3 months
EURIBOR                                              92         103        --
                                               --------    --------    --------
                                                 20,593      23,248      23,104
Less current portion                             (4,081)     (4,607)     (4,020)
                                               --------    --------    --------
Long-term debt, long-term portion              $ 16,512      18,641      19,084
                                               ========    ========    ========



              The Company entered into three unsecured notes with its
              affiliates, which are also included in the current portion of
              long-term debt on the balance sheet:


                                              2001       2001      2000
                                             -------    -------   -------
                                             (Dollars)        (Euro)
Euro 5,988 ($5,305), due
  December 31, 2002, unsecured
  bearing interest at a rate
  of 6% per annum                             $ 5,305     5,988     5,426

Euro 4,049 ($3,587), due
  December 31, 2002, unsecured
  bearing interest at a rate
  of 6% per annum (a)                           3,587     4,049         0

Euro 3,387 ($3,000), due
  December 31, 2002, unsecured
  bearing interest at a rate
  of 6% per annum (a)                           3,000     3,387         0
                                              -------   -------   -------
                                              $11,892    13,424     5,426
                                              =======   =======   =======

          (a)  A portion of the notes are automatically convertable into the
               Company's common stock, at a conversion price equal to 85% of the
               market value of the Company's common stock at maturity date, in
               the event the Company does not repay the notes, and any accrued
               interest thereon, as of the maturity date. 3,000,000 shares were
               issued in 2002 related to these notes.




                                      F-20



<PAGE>


                        SPIGADORO, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                       (in thousands of Dollars and Euro)



NOTE 13 -     LONG-TERM DEBT (CONTINUED):

          (1)  Gazzola has not made payments of principal since June 2001. The
               payment terms have been modified the bank to provide for 14
               payments of Euro 738 ($653) each year every June 1 and December 1
               starting in June 2002.

          (2)  The long-term draft for Euro 310 ($274) at December 31, 2001
               relates to assets purchased in accordance with the Sabatini law,
               which provides for certain privileged interest at the annual
               interest rate of approximately 7%.

          (3)  The subsidiary "Gazzola" acquired assets under lease agreements,
               which qualify as capital leases. Future minimum rental payments
               as of December 31, 2001 are as follows:

               Year                                     Dollars        Euro
               ----                                      -----        -----
               2002                                      $ 197          223
               2003                                        124          140
               2004                                         60           68
               2005                                         12           15
               2006                                          -            -
                                                         -----        -----
               Total minimum lease payments                393          446
               Amount representing interest                (38)         (34)
                                                         -----        -----
               Present value of net minimum
                capital lease payment                    $ 355        $ 412
               Less current maturities                     182          206
                                                         -----        -----
                                                         $ 473          206
                                                         =====        =====


              The loans that are subsidized by the Italian Government were
              obtained under a Government program for new investments. The
              interest paid by the Italian Government amounted to Euro 10 ($9)
              in 2001 and Euro 12 ($6) in 2000. These subsidies reduced the
              effective interest rates applicable to these loans from 12.0% to
              4.0% in 2001 and from 12.2% to 4.4% in 2000.

              Maturities of long-term debt are as follows:

              Year                                   Dollars          Euro
              ----                                  ---------        -------
              2002                                    $ 3,898          4,401
              2003                                      3,422          3,863
              2004                                      3,274          3,697
              2005                                      3,039          3,431
              2006                                      2,676          3,021
              Thereafter                                3,929          4,423
                                                     --------         ------
              Total minimum lease payments           $ 20,238         22,836
                                                     ========         ======






                                      F-21
<PAGE>


                        SPIGADORO, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                       (in thousands of Dollars and Euro)


NOTE 14 -     EMPLOYEES AND AGENTS TERMINATION INDEMNITIES:

              The liability for termination indemnities relates principally to
              the Company's employees. In accordance with Italian severance pay
              statutes, an employee benefit is accrued for service to date and
              is payable immediately upon separation. The termination indemnity
              liability is calculated in accordance with local civil and labor
              laws based on each employee's length of service, employment
              category and remuneration. The termination liability is adjusted
              annually by a cost-of-living index provided by the Italian
              Government. There is no vesting period or funding requirement
              associated with the liability.

              The liability recorded in the balance sheet is the amount to which
              the employee would be entitled if the employee separates
              immediately.

              The liability for termination indemnities includes also the
              liability to the sales agents, which is recognized to the agent if
              unilaterally dismissed by an employer or when he reaches
              retirement age.

              The provision for termination indemnities charged to operations
              amount to approximately Euro 1,302 ($1,153), Euro 1,293 and Euro
              1,086 in the years ended December 31, 2001, 2000 and 1999,
              respectively.


NOTE 15 -     STOCK OPTIONS:

              In December 1996, the Company's Board of Directors and
              stockholders approved the adoption of the Company's 1996 Stock
              Option Plan (the "1996 Plan"). The 1996 Plan provides for the
              grant of 500,000 non-qualified and incentive stock options to
              eligible employees and advisors. As of December 31, 2001, 2000 and
              1999, 240,000 options, respectively, have been granted under the
              1996 Plan and no options have been exercised.

              During 1999 and 1998, the Company entered into stock option
              agreements outside the Plans. The agreements provide for the
              issuance of non-transferable options to purchase up to an
              aggregate of 335,000 shares of the Company's common stock at
              purchase prices ranging from $1.87 to $6.00 per share, as defined,
              and have piggy-back registration rights. As of December 31, 2001,
              25,000 options have been exercised.

              In December 1999, the Company's Board of Directors and
              stockholders approved the adoption of the Company's 1999 Stock
              Option Plan (the "1999 Plan"). The 1999 Plan provides for the
              grant of 2,500,000 shares of non-qualified and incentive stock
              options to eligible employees, officers, directors, consultants or
              advisors. As of December 31, 2001, 530,000 options have been
              granted under the 1999 Plan, and no options have been exercised.


                                      F-22

<PAGE>


                        SPIGADORO, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                       (in thousands of Dollars and Euro)


NOTE 15 -     STOCK OPTIONS (CONTINUED):

              The following summarized the information relating to outstanding
              stock options during 2001, 2000, and 1999:


                                                      Weighted Average
                                              Number   Exercise Price
                                                of    ----------------
                                              Shares  (Dollars) (Euro)
                                              ------  --------- ------

Shares under option at January 1, 1999        530,000    $5.50   6.21
Granted                                       620,000     2.60   2.94
Exercised                                     (25,000)    6.00   6.77
Cancelled                                    (175,000)    5.71   6.45
                                           ----------    -----   ----

Shares under option at December 31, 1999      950,000     3.56   4.02
Granted                                       450,000     2.89   3.26
Cancelled                                    (170,000)    3.06   3.45
                                           ----------    -----   ----

Shares under option at December 31, 2000    1,230,000     3.38   3.82
Granted                                     3,240,457     0.45   0.51
Cancelled                                    (870,000)    2.78   3.14
                                           ----------    -----   ----

Shares under option at December 31, 2001    3,600,457     1.35   1.52
                                           ==========    =====   ====

Exercisable at December 31, 2001            3,450,457    $0.94   1.06
                                           ==========    =====   ====

              At December 31, 2001, stock options outstanding were as follows:


                                   Weighted
                                   Average
                      Options     Contractual   Exercisable    Weighted Average
 Exercise Price     Outstanding  Life (Years)    Options         Exercise Price
------------------  -----------  -------------  -----------   -----------------
(Dollars)   (Euro)                                            (Dollars)  (Euro)

 $ 0.45      0.51    3,240,457       9.58        3,090,457      $ 0.45     0.51
   3.00      3.39       25,000       9.05           25,000      $ 3.00     3.39
   4.00      4.52        5,000       9.05            5,000      $ 4.00     4.52
   4.25      4.80       80,000       7.23           80,000      $ 4.25     4.80
   5.00      5.64       70,000       6.54           70,000      $ 5.00     5.64
   5.63      6.36       10,000       7.10           10,000      $ 5.63     6.36
   6.00      6.77      170,000       7.15          170,000      $ 6.00     6.77
                    -----------  ---------      -----------

                     3,600,457       9.34        3,450,457
                    ===========  =========      ===========





                                      F-23



<PAGE>

                        SPIGADORO, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                       (in thousands of Dollars and Euro)




NOTE 15 -     STOCK OPTIONS (CONTINUED):

              Had compensation cost for the Company's stock based compensation
              plans been determined based on the fair value at the grant dates,
              consistent with the provisions of SFAS 123, the Company's net loss
              and loss per share would have been increased to the pro forma
              amounts indicated below:

                                        2001      2001        2000      1999
                                     ----------  -------     -------   ------
                                      (Dollars)              (Euro)
Net (loss) income
As reported                          $ (19,269)  (21,753)    (4,607)    1,185
Pro forma                              (19,967)  (22,541)    (5,594)      291
Basic and diluted net (loss)
 income per share:
As reported                             (0.31)    (0.35)     (0.08)     0.02
Pro forma                               (0.33)    (0.37)     (0.10)     0.01


              The fair value of each option grant is estimated on the grant date
              using the Black-Scholes option pricing model with the following
              weighted average assumptions used for 2001, 2000, and 1999 grants,
              respectively: risk-free interest rate of 4.5%; no dividend yield;
              expected lives of 5 to 10 years; and expected volatility of 95%,
              95% and 100%, respectively. The weighted average fair value of
              options granted during the years ended December 31, 2001, 2000,
              and 1999 was Euro .25 ($.22), Euro 2.81 , and Euro 2.16 per share,
              respectively.


NOTE 16 -     STOCKHOLDERS' EQUITY:

              In December 2001, the Company issued 3,372,094 shares of common
              stock in connection with its acquisition of Spigadoro Foods. In
              July 2001, 201,885 shares of common stock were issued to satisfy
              an amount due to the former owner of Columbus.

              In May 2000 the Company issued 583,334 shares of its common stock
              to Starfood Italia and received cash proceeds of Euro 1,972
              ($1,747). The Company has also agreed to make additional
              contingent payments on May 3, 2002 of up to approximately Euro
              5,165 ($4,575) subject to certain conditions. The Company has
              guaranteed the obligations of Petrini with respect to the
              additional contingent payments and has issued 2,125,000 shares of
              its common stock, which were put into escrow to satisfy such
              obligations if required. These shares were released from escrow in
              2001 and cancelled.

              In September 2000, the Company issued 108,889 shares of common
              stock related to services received.

              On various dates during 1997 and 2000, the Company reacquired an
              aggregate on 102,000 shares of its common stock.

              In connection with the Company's Initial Public Offering, certain
              of the Company's stockholders agreed to place an aggregate of
              498,285 of their shares of the Company's common stock in escrow.
              These shares were not assignable or transferable (but may be
              voted) until such time as they are released from escrow based upon
              the Company meeting certain annual revenue and/or earnings levels
              or the common stock attaining certain price levels. The Company
              did not meet the thresholds established by the escrow arrangement
              and, as a result, the escrow shares were canceled and contributed
              to the Company's capital effective as of March 31, 2000.



                                      F-24


<PAGE>



                        SPIGADORO, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                       (in thousands of Dollars and Euro)


NOTE 16 -     STOCKHOLDERS' EQUITY (CONTINUED):

              As of December 31, 2001 and 2000, the Company had the following
              warrants outstanding:


Date issued       Warrants       Exercise Price Per Share     Expiration date
-----------      ---------       ------------------------     ----------------
                                 (Dollars)       (Euro)

June 1998           88,241         $ 13.25        11.74          June 2003
April 1997         335,000            9.90         8.77         March 2002
October 1996     2,348,485            7.80         6.91       December 2006

              Italian law requires that 5% of a company's net income be retained
              as a legal reserve, until such reserve equals 20% of the share
              capital. This reserve is not available for distribution.


NOTE 17 -     SOCIAL CONTRIBUTIONS AND INCOME TAXES PAYABLE:

              These non current liabilities consist of social contribution and
              income taxes due by the Company whose payment has been postponed
              beyond 2002 in application of the Government decrees enacted after
              the earthquake that hit the area where the headquarters and the
              major production activities of the Company are located. At
              December 31, 2001 and 2000, the components of these liabilities
              consisted of:

                                             2001       2001       2000
                                          ---------    -----      -----
                                          (Dollars)         (Euro)

              Income taxes                 $  438        495        495
              Social contributions          1,646      1,858      1,908
                                          -------      -----      -----
              Total                       $ 2,084      2,353      2,403
                                          =======      =====      =====


NOTE 18 -     INCOME TAXES:

              Taxes receivable of Euro 9,706 ($8,598) at December 31, 2001 and
              Euro 9,063 at December 31, 2000 relate principally to V.A.T. taxes
              for which the Company periodically receives reimbursement from the
              V.A.T. office. The V.A.T receivable position is attributable to
              the fact that the V.A.T rate applicable to the products sold by
              the Company is lower than the average rate applied to its
              purchases, costs and expenses.




                                      F-25



<PAGE>


                        SPIGADORO, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                       (in thousands of Dollars and Euro)


NOTE 18 -     INCOME TAXES (CONTINUED):

              Income before income taxes and the provision for income taxes
              consisted of the following for the years ended December 31, 2001,
              2000 and 1999:


                                   2001       2001        2000         1999
                                 --------    --------    --------    --------
                                (Dollars)                (Euro)

Income before income taxes (1)   $(19,216)    (21,693)        388       3,468
                                 --------    --------    --------    --------

Provision for income taxes:
Current                               762         860         810       2,322
Deferred                             (665)       (751)      2,114         (39)
                                 --------    --------    --------    --------

                                       97         109       2,924       2,283
                                 --------    --------    --------    --------

Net income (loss) from
 continuing operations:          $(19,313)    (21,802)     (2,536)      1,185
                                 ========    ========    ========    ========


              (1) Includes loss from U.S. Operations of Euro 1,850 ($1,639),
              Euro 626, and Euro 5,726 as of December 31, 2001, 2000, and 1999.






                                      F-26


<PAGE>


                        SPIGADORO, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                       (in thousands of Dollars and Euro)


NOTE 18 -     INCOME TAXES (CONTINUED):

              The reconciliation between the Italian statutory tax rate and the
              effective tax rate in Italian Euro is as follows:
<TABLE>
<CAPTION>

                                2001             2001                2000              1999
                               ------     ------------------  -----------------  ----------------
                               Amount     Amount        %     Amount       %     Amount       %
                               ------     ------      ------  -------    ------  -------     ----
                               Dollar      Euro                Euro               Euro
<S>                           <C>         <C>        <C>      <C>       <C>     <C>         <C>
Tax provision applying
 the Italian statutory rate
 of 41.25% in 2001,
 2000 and 1999                $(7,921)    (8,948)     41.2      160       41.2    1,429      41.2

Impairment                      2,921      3,300     (15.2)

Foreign tax                      --         --          --    2,202      566.9     --         --

Valuation allowance             4,752      5,368     (24.7)    --         --       --         --

Permanent differences
 for non-deductible
 expenses:
 For IRPEG-ILOR (until  1977)    --         --         --      --         --        198       5.7
 For IRAP (primarily on
  salaries and interest)          458        517      (2.4)     722      185.9      911      26.3
Other                            (113)      (128)     (0.6)    (160)     (41.2)    (255)     (7.4)
                              -------    -------      ----    -----      -----    -----      ----

Tax provision and effective
 tax rate                     $    97        109      (1.7)   2,924      752.8    2,283      65.8
                              =======    =======      ====    =====      =====    =====      ====

</TABLE>


              Tax years for the Companies are open from 1994 and are subject to
              review pursuant to Italian law. The Company has been subjected to
              tax reviews in previous years. Management believes, based on the
              advice of its tax consultants, which the final outcome of the tax
              assessments deriving from such reviews, if any, will not result in
              any significant additional liabilities.

              As more fully described in Note 16, the payment of a portion of
              the current taxes payable have been postponed on the basis of
              Government decrees.




                                      F-27

<PAGE>



                        SPIGADORO, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                       (in thousands of Dollars and Euro)





NOTE 18 -     INCOME TAXES (CONTINUED):

              At December 31, 2001 and 2000, principal items comprising net
              deferred income tax assets consisted of:


                                         2001         2001         2000
                                       ---------    --------     -------
                                       (Dollars)                  (Euro)
Assets

Step-up and revaluation of property,
 plant and equipment                    $  2,103       2,376       2,483
Step-up of trademark, net                    771         871         871
Goodwill                                     216         244         279
Fiscal losses                             13,218      14,932       9,565
Allowance for doubtful accounts              952       1,076         724
Revaluation of Land and Building             495         559         559
Other                                        402         454         434
                                        --------    --------    --------

                                          18,157      20,512      14,915
Less valuation allowance                 (13,783)    (15,570)    (10,243)
                                        --------    --------    --------

Total assets                               4,374       4,942       4,672
                                        --------    --------    --------

Liabilities

Gains on sale of assets which for
 tax purposes, are deferred                  (87)        (99)       (153)
Push-down of step-up adjustments          (3,957)     (4,470)     (4,879)
Basis difference in acquired assets         (913)     (1,031)       (407)
Accelerated amortization of
 trademarks                                 (896)     (1,012)     (1,030)
Other                                        (64)        (72)        (71)
                                        --------    --------    --------

Total liabilities                         (5,917)     (6,684)     (6,540)
                                        --------    --------    --------

Net deferred tax assets (liabilities)   $ (1,543)     (1,742)     (1,868)
                                        ========    ========    ========



              A valuation allowance of Euro 15,570 ($13,792) and Euro 10,243
              ($9,073) has been provided against the deferred tax assets at
              December 31, 2001 and 2000 based on estimates made by management
              assuming that it is more likely than not that certain deferred tax
              assets will not be recovered for both IRPEG and IRAP tax purposes.







                                      F-28


<PAGE>

                        SPIGADORO, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                       (in thousands of Dollars and Euro)


NOTE 18 -     INCOME TAXES (CONTINUED):

              At December 31, 2001 the Company has net operating loss
              carryforwards (NOL) for Italian and United States income tax
              purposes of Euro 34,310 ($30,393) and Euro 12,471 ($11,047),
              respectively. The United States NOLs expire through 2021.


NOTE 19 -     COMMITMENTS AND CONTINGENCIES:

              Commitments

              Guarantees given to banks for discounting customers' drafts
              amounted to Euro 794 ($703) at December 31, 2001.

              Contingencies

              The Company provides for costs related to contingencies when a
              loss is probable and the amount is reasonably determinable. The
              amount provided for at December 31, 2001 and 2000 is Euro 225
              ($199) and Euro 150. It is the opinion of management that the
              ultimate resolution of these matters, to the extent not currently
              provided for, will not have a material effect on the financial
              statements of the Company.

              Modifications to General Regulatory Plan ("GRP") of the
              City Council of Bastia Umbra

              The City Council of Bastia Umbra on December 21, 1996 approved a
              modification to its GRP, changing the purpose of use of the areas
              currently utilized by Petrini for its production activities
              preventing the continuation of such activities in Bastia. Petrini
              presented to the City Council its observations and comments on
              such proposed modifications asking to continue its production
              activities in the area currently occupied by its factory or,
              alternatively, asking for the authorization to transfer its
              production facilities to another own area in Ospedalicchio. On
              September 4, 1999 the City Council published its decision of May
              17, 1999 to reject the request of Petrini to maintain its
              production activities in Bastia, while approved the change of the
              purpose of use of the area in Ospedalicchio (from agricultural to
              industrial) in order to make possible the transfer of the factory.
              The decision of the City Council has been approved by the region
              of Umbria with the change to maintain the production activity in
              Bastia. Subsequently, the City Council approved the continuation
              of the mill and animal feed production for Petrini in Bastia.

NOTE 20 -     CONCENTRATION OF CREDIT RISK:

              Concentration of credit risk and the risk of accounting loss with
              respect to trade accounts receivable is generally limited due to
              the number and diversity of the Company's end customer base and
              the areas and the markets in which the customers are located. The
              Company performs frequent credit evaluations of its customers'
              financial condition and normally does not require collateral from
              its customers. Net direct sales to any one customer did not exceed
              5% of total direct sales in each of the three years in the period
              ended December 31, 2001. As of December 31, 2001, accounts
              receivable from the largest customer does not exceed 10% of total
              accounts receivable.

              Cash deposits are maintained with major banks in Italy,
              United States, U.K. and Switzerland.



                                      F-29

<PAGE>

                        SPIGADORO, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                       (in thousands of Dollars and Euro)


NOTE 21 -     INFORMATION BY SEGMENT:

              Segment information has been prepared in accordance with SFAS No.
              131, "Disclosure about Segments of an Enterprise and Related
              Information". The Company manages its business on a segment basis.
              The significant segments operated by the Company consist of: i)
              pasta and other food products and ii) animal feed and other
              activities. Information relative to significant segments is
              reported below for the years 2001, 2000 and 1999. The Company
              evaluates performance of the segments based on EBITDA and income
              from operations. The accounting policies of the segment are
              substantially the same as those described in Note 2 Significant
              Accounting Policies.



                                      F-30

<PAGE>


                        SPIGADORO, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                       (in thousands of Dollars and Euro)



NOTE 21 -     INFORMATION BY SEGMENT (CONTINUED):

              Export sales by the Company from Italy, all related to pasta
              and other food products were as follows: Substantially all
              the assets of the Company are located in Italy.
<TABLE>
<CAPTION>
                                                          Animal
                                            Pasta and    feed and
                                            other food     other                    Total
                                             products    activities    Corporate   Company
                                           ------------  ----------    ---------  ----------
<S>                                        <C>          <C>            <C>        <C>
2001 (Dollars)
--------------
Total sales                                $  69,878    $  92,090                   161,968
Depreciation and amortization                  4,726        2,954                     7,680
EBITDA                                        (1,175)       3,371       (1,276)         920
Loss from operations                          (8,337)      (6,668)      (1,276)     (16,281)
Identifiable long-term assets (property,
 plant and equipment and intangibles)         49,169       34,330                    83,499
Capital expenditures                           2,198        1,655                     3,853

2001 (Euro)
-----------
Total sales                                   75,536      107,310                   182,846
Depreciation and amortization                  5,336        3,334                     8,670
EBITDA                                        (1,327)       3,806       (1,440)       1,039
Loss from operations                          (9,412)      (7,528)      (1,440)     (18,380)
Identifiable long-term assets (property,
 plant and equipment and intangibles)         55,507       38,755                    94,262
Capital expenditures                           2,481        1,869                     4,350

2000 (Euro)
-----------
Total sales                                   66,657       98,342                   164,999
Depreciation and amortization                  4,084        3,306                     7,391
EBITDA                                        (2,357)        (464)        (907)      (3,728)
Income from operations                        (6,441)      (3,770)        (907)     (11,119)
Identifiable long-term assets (property,
 plant and equipment and intangibles)         55,770       70,522                    95,549
Capital expenditures                           2,616        1,991                     5,669

1999 (Euro)
-----------
Total sales                                   35,640       99,458                   135,098
Depreciation and amortization                    945        2,150                     3,095
EBITDA                                         1,585        7,339         (835)       8,089
Income from operations                           640        5,190         (835)       4,995
Identifiable long-term assets (property,
 plant and equipment and intangibles)          9,951       36,425                    46,376
Capital expenditures                             320        1,028                     1,348

</TABLE>

                                      F-31


<PAGE>

                        SPIGADORO, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                       (in thousands of Dollars and Euro)

NOTE 21 -     INFORMATION BY SEGMENT (CONTINUED):

                                   2001      2001      2000       1999
                                  -------   -------   -------   -------
                                 (Dollars)            (Euro)

              Europe              $32,760    36,983    27,230     1,894
              U.S.A                   918     1,036     2,887     1,529
              Japan                 1,124     1,269     1,974     2,311
              Rest of the world     7,123     8,041     4,569     2,471
                                  -------   -------   -------   -------

              Total               $41,925    47,329    36,660     8,205
                                  =======   =======   =======   =======


NOTE 22 -     VALUATION AND QUALIFYING ACCOUNTING:

                                Balance at  Charged to             Balance at
                                 beginning  costs and                end of
                                 of period  expenses   Deductions    period
                                 --------- ----------  ----------    -------

Year ended December 31, 2001
 (thousands of Dollars):

Allowance for doubtful accounts   $2,319      1,253         670       $2,902
                                  ======     ======      ======       ======

Year ended December 31, 2001
 (thousands of Euro):

Allowance for doubtful accounts    2,618      1,415         756        3,277
                                  ======     ======      ======       ======

Year ended December 31, 2000
 (thousands of Euro):

Allowance for doubtful accounts      959      2,144         485        2,618
                                  ======     ======      ======       ======

Year ended December 31, 1999
 (thousands of Euro):

Allowance for doubtful accounts    1,387        856       1,284          959
                                  ======     ======      ======       ======



                                      F-32
<PAGE>

                        SPIGADORO, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                       (in thousands of Dollars and Euro)


NOTE 23-      DISCONTINUED OPERATIONS:

              Prior to the acquisition of Petrini, the Company operated several
              businesses that distributed personal computer components,
              peripherals and software, as well as personal computers, in
              Germany through Columbus and its affiliates. The Company attempted
              to sell the Columbus assets, however, after being unable to find a
              purchaser, the Company, in the fourth quarter of 2000, decided to
              liquidate in an orderly manner. The loss from discontinued
              operations includes the operations of Columbus.


NOTE 24-      RELATED PARTY TRANSACTIONS:

              At December 31, 2001, and 2000 the Company had Euro 13,424
              ($11,892) and Euro 6,125, respectively, of short-term note
              payables due to affiliates (see Note 13). The Company had accrued
              interest of approximately Euro 172 ($152) and Euro nil as of
              December 31, 2001 and 2000, respectively.

              At December 31, 2000 and 1999, the Company had amounts due from
              N.V. of Euro 239 and Euro 442 included in other assets and Euro 30
              included in accounts receivable.

              In 1999, N.V. charged the Company an amount of Euro 299 for
              expenses incurred on behalf on Petrini in relation to their
              acquisition of Petrini.


NOTE 25-      QUARTERLY SELECTED DATA (UNAUDITED):

                                First       Second      Third       Fourth
                               Quarter      Quarter    Quarter      Quarter
                               --------    --------    --------    ---------
2001 (Dollars)
--------------
Net sales                      $ 39,628    $ 40,929    $ 38,785    $ 42,626
Gross Profit                      8,166       8,213       7,454       9,152
Net Income (Loss)                (3,164)     (4,670)     (4,275)     (7,160)
Income per common and common
 share equivalent                 (0.05)      (0.08)      (0.07)      (0.11)

2001 (Euro)
----------
Net sales                        44,736      46,205      43,785      48,120
Gross Profit                      9,218       9,272       8,415      10,332
Net Income (Loss)                (3,572)     (5,272)     (4,826)     (8,083)
Income per common and common
 share equivalent                 (0.06)      (0.09)      (0.08)      (0.12)

2000 (Euro)
----------
Net sales                        32,749      41,567      44,549      46,134
Gross Profit                      8,518       7,954       8,718       7,342
Net Income (Loss)                10,609      (2,302)     (7,164)     (5,750)
Income per common and common
 share equivalent                  0.18       (0.01)      (0.06)      (0.19)


                                      F-33



<PAGE>

                        SPIGADORO, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                       (in thousands of Dollars and Euro)


NOTE 26-      SUBSEQUENT EVENT:

              In April 2002, the Company reached an agreement with the various
              banks that provides for an extension of its working capital
              facility for a period of 24 months from October 2001. The
              agreement provides that the Company will be required to repay
              approximately 10% of the principal amount in April 2003, 50% of
              the outstanding principal amount in June 2003, and the remaining
              outstanding balance in October 2003. Outstanding amounts bear
              interest at a rate equal to EURIBOR plus 125 basis points.






                                      F-34

<PAGE>



                                   SIGNATURES

In accordance with the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.

                                                   SPIGADORO, INC.

Dated:     April 11, 2002                          By: /s/ Riccardo Carelli
                                                   ------------------------
                                                   Riccardo Carelli
                                                   Chief Executive Officer

Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed by the following persons on behalf of the registrant and in the
capacities and on the dates indicated.

SIGNATURE                               TITLE                  DATE

/s/ Jacob Agam
------------------------
Jacob Agam                  Chairman of the Board              April 11, 2002

/s/ Carlo Petrini
------------------------
Carlo Petrini               Co-Chairman of the Board           April 11, 2002

/s/ Riccardo Carelli
------------------------
Riccardo Carelli            Chief Executive Officer            April 11, 2002
                            (principal executive
                            officer) and Director

/s/ Larino Teruzzi
------------------------
Larino Teruzzi              Chief Financial Officer            April 11, 2002
                            (Principal Accounting and
                            Financial Officer)

/s/ Marc S. Goldfarb
------------------------
Marc S. Goldfarb            Director                           April 11, 2002

/s/ Klaus Grissemann
------------------------
Klaus Grissemann            Director                           April 11, 2002

/s/ Erich Weber
------------------------
Erich Weber                 Director                           April 11, 2002

/s/ Robert Weiss
------------------------
Robert Weiss                Director                           April 11, 2002